I paid off my student loan with a credit card!

You read the title correctly.  A few months back, I transferred the balance remaining on my student loan to a credit card.  Why would I do such a thing?  There is only one correct answer to this of course.  The answer is to SAVE money.  How can you save money by transferring a student loan with a reasonable interest rate of 5.5% to a credit card you ask?  Well, if the credit card has a lower interest rate than 5.5% you save money.  The current rate I’m paying on my “student loan” now is 0.99%.  In other words, less than 5 times the interest.  Not too shabby!!!  How much is this saving me?  Well it is saving me about $94 of interest. (Calcs below if you are interested)   And wait…it gets better!  Normally with these credit card promotional rate/balance transfers, you have to pay a transaction fee of 1% or something along these lines.  With this card, there was no such fee!!  How about more great news…this card also gave me a bonus $20 off my first purchase!  More savings.  So lets call my savings from this one transaction $114.   Pretty good for about 25 minutes of work.  Where do you find a credit card with such a low rate?  Well you do need to spend a bit of time searching for a good promotional rate when you sign up for the card.  I found this one quite quickly on line.

Tips and Warnings

Make sure your promotional rate is a good length of time.  You want it to be long enough to ideally pay off your balance, or have a very low balance, such as under $100, if you are transferring something over such as a student loan to make it worth your while.  You cannot transfer back into your student loan and get the 5.5% rate again, you student loan has now been paid off, the loan account will be  closed.

If you are transferring over from some crazy high interest credit card, such as most department store cards at 29.9%, then if the interest rate after the promo period is lower or the same as this card, then you are likely going to come out a head with doing the transfer for the promo period.

Make sure to count the transaction fee, usually 1%, as part of the promo interest rate.  *BONUS TIP* Ask if the transaction fee can be cut in half, or even waived.  I’ve had mine waived two or three times.

Make sure you don’t miss a payment, of course you shouldn’t be missing payments anyway, but if you miss a payment you will likely loose your promo rate.

If you have a line of credit, which seem to have interest rates around 5-8%, then you can freely transfer back and forth with various promo rates and your line of credit.  Once the promo is up, transfer back to your line of credit and wait for another promo to come your way.  These transfers are something that my wife and I will often take advantage of.   How do you get a line of credit instead of a loan?  That may make a good future post.  Thanks for the idea!

The Non Believers

Ive found quite a few of these people out there.  “You did what?  Took a intro rate on a credit card?  Careful, they wont honor that.” or “That can’t be true, no one would offer 0% interest!” or “I would never to that, I don’t believe in credit cards!”  Ive found that when I abide by the rules, the credit card companies also abide by their offering.  I’ve done this dozens of times over the last 10 years and always found this to be the case.

The Calcs

Student loan interest rate is 5.5%.  Balance owing at time of transfer $6,000.  Promo rate on credit card 0.99%.

6,000 x 0.055 = 330   and 6000 x 0.0099 (call it 1%)  = 60 however you can claim student loan interest as a tax credit, so I would get 25% of 330 back, about $82 so 330-82=248 and 248- 60= $188  These are all annual calculations, since all the interest rates are given as an annual rate.  I’m paying off my loan in half a year, so half $188 is $94.

I would like to hear about any experiences others have had, bad or good, with promo rates!  Thanks for stopping by.