About a month ago, I wrote an overview about using credit card balance transfers to help you pay off debt. If that’s a new idea, you’ll want to read that post first. I want to share our personal experience with using a balance transfer to pay off student loans.
Last July, we used a credit card balance transfer to pay off $11,000 of federal student loans. We went in with our eyes open, knowing the risks and catches of using balance transfers in debt repayment. Even so, there were some lessons we learned.
We paid off our balance transfer last week, well before the introductory APR period was over, just as we had planned. Here are the three lessons we’ve learned from leveraging a balance transfer to pay off student loans to save on interest.
1- Wait for the right offer
We hadn’t seen balance transfer offers in ages, let alone 0% APR balance transfers, so we thought they were extinct. When a balance transfer of 2.9% came along it looked great (to my husband, I am usually more conservative), considering that was less than half of the interest rate on our student loans. It helps that it came from USAA, which my husband loves. We jumped on it.
Not three weeks later we received another offer from USAA for a 0% APR balance transfer, plus it had no transfer fee! We have since received several other 0% APR offers.
Even better than just waiting for the perfect offer to come in the mail, take some initiative and call. Ask “is that the best you can give me?” USAA has been great to work with and surely would have given us a better rate if we had only asked!
2- Watch out for the transfer fee
When we made our transfer, the fee was 3% of each transfer with a maximum of $75 per transfer (most are just 3% with no max). We had planned to transfer $11,000, so we were excited that the $75 max would be much less than 3% of $11,000, which is $360.
The problem came when made the transfer. We wrote the balance transfer checks out to ourselves to deposit into our checking account and then we planned to pay the student loan from the checking account. Well, our bank has a maximum of $10,000 electronic deposit per day, so without thinking twice, my husband wrote and deposited a check for $9,000 the first day, and another check for $2,000 the next day. Well that makes two transfers, which means we were hit with a $75 fee and a $60 fee. That’s almost double what we had planned on in our calculations.
3- Keep the card separate
Make sure that you aren’t making new purchases on the card. That was our plan, but we had some automatic payments set up with that card since it was our regular USAA Mastercard that we had had for ages rather than a brand new credit card just for balance transfer purposes. Sorting out the interest from the balance transfer and new purchases, as well as figuring out where the payments were being applied got a little messy at times.
Would we do it again?
Probably. Only next time we will be even smarter. We will wait for (or ask for) the offer we want, be careful with the transfer fee, and keep the card completely separate from our other credit card transactions.
The numbers for the transfer make sense. If we had not made the balance transfer, but paid the same amounts on the loan, we would have paid a total of $378 in interest over the 11 months. With the balance transfer, we paid only $153 in interest over the 11 months. However we also paid $135 in balance transfer fees, shaving our actual savings down to $90. Finding a 0% interest transfer with no balance transfer fee, we would have saved the full $378. That’s what we’re looking for next time.
UPDATE: We DID do it again. We used a credit card balance transfer to pay off another $15,000 of federal student loans. It worked out even better the second time around. You can read all about it here!
It’s Your Turn!
- If you’ve used a balance transfer before, what have you learned?
- Would you consider using a balance transfer to save on interest? Why or why not?