Anyone who has paid attention to their debts (or investments), knows that interest adds up quickly! In fact, if you made the calculation to find the daily interest you accrue on your debt, you are keenly aware of exactly how much interest is costing you. Paying down the principle is the most obvious way to reduce the burdensome interest. The faster you pay off the debt, the less interest you’ll have to pay.
We are doing something a little unconventional to reduce the amount of interest that we pay. It’s nothing complicated or illegal, but it’s definitely not for everyone. In fact, some of you might even hate the idea. While I surely don’t recommend this strategy for most people, it can work nicely for the right person in the right situation.
Not for Everyone
If you aren’t 100% committed to paying off your debt, this strategy could come back and bite you. There is some risk involved. If your income situation is unstable, I wouldn’t try it. If you have had problems with credit card debt in the past, then this strategy isn’t for you. Also, this only works for us because our required monthly student loan repayment amount is $0. If we used a credit card to pay of part of the loans, and then had to make both loan payments and credit payments each month, it would be more difficult.
However, if you are organized, responsible with credit cards, willing to take some risk, can confidently cover the payments you incur, and are totally committed to paying off your debt asap, then this strategy could save you some money in interest.
Improving Upon Experience
Two years ago, we used a credit card balance transfer to pay off $11,000 of student loans. We weighed the risks and benefits of using balance transfers to pay off debt and decided on a conservative amount for the promotional period (after which the interest goes up drastically). We paid it off in time, saved money on interest, and learned several important lessons in the process. Afterwards we looked at the complete picture to see how much we actually saved. We decided that we would be willing to use balance transfers again to save interest on our student loans, only we’d be even smarter in the future.
In particular, would be smarter by:
- Waiting for a 0% APR offer. While 2.9% was less than what we were paying for student loan interest, we should have held out for (or asked for) a 0% rate.
- Waiting for $0 transfer fee. Anything we have to pay in transfer fees eats into the amount of money we are able to save with this strategy.
- Not making any other purchases (or automatic payments) with the card to keep it simple and ensure we aren’t paying any interest.
Using Balance Transfers to Pay Off Debt
Well, we’re doing it again!
A couple weeks ago we got a balance transfer offer in the mail for our USAA Mastercard. The offer give us 0% APR on balance transfers for 13 months. Balance transfers made within the first month of the offer have no balance transfer fees. This is the ideal offer for our purposes because:
- 0% APR means we will pay no interest as long as the balance is paid off by the end of the promotional period.
- No fees means making the transfer won’t cost us anything at all up front.
The Details
We paid off our current balance on the credit card a little early and then put the card away where we wouldn’t accidentally use it for some other purchase. We made sure there were no recurring payments made with that card. We used the convenience checks provided with the balance transfer offer to write large checks to ourselves. Last time we learned that our account has a maximum electronic deposit of $10,000 per day, so we wrote two checks to ourselves: one for $9,000 and one for $6,000. We deposited them in our checking account on two consecutive days. When the checks cleared, we had an extra $15,000 in our checking account. We logged in to the student loan servicing account and used every last cent of that $15,000 to put toward student loans.
Why did we choose $15,000? Basically, that was an amount that we knew we would be able to take care of well within the time frame.
Now our Mastercard has a balance of $15,000. It won’t get any interest for a year. We will work to pay it off as soon as possible. Looking at our track record, we are confident that we will be able to pay off that amount within the allotted time and hopefully much sooner. In the meantime, our student loan servicer will keep charging interest on the remaining amount, but it will be on $15,000 less of principal.
How Much Will We Save?
Looking at an amortization schedule for a 12-month loan in the amount of $15,000 loan at 6.55% interest shows monthly payments of just under $1,300 per month. Over 12 months, we would pay $537 in interest. With a 0% interest balance transfer with no fees, we will save approximately $537 in interest.
The figure will vary depending on how much we actually pay each month and whether it takes us the entire 12 months or not. Since we are putting everything possible toward our debt, no two months of debt repayment are exactly the same. Hopefully most months will have a higher payment than $1,300, so we will knock out $15,000 in less than a year.
We’ll keep you posted if anything interesting or unexpected happens.
How About You?
- Would you ever consider using a balance transfer to save money on interest? Why or why not?
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Quick question, as I am strongly considering doing this within the next 72 hours. Isn’t it considered a cash advance when you write the check to yourself?? There no transfer of balances (erasing of debt) just a deposit into the account of your choosing?
Please enlighten me on how this works as when I spoke with AMEX today, they mentioned that the account information must contain a numeric account number, paid to a financial institution, not person or individual, and it could not be used for loan or lease accounts.
Any insight would be greatly appreciated!
Many thanks for posting the details of your transaction. A light bulb went off in my head this morning and I wondered to myself out loud if I could transfer a portion of my mortgage to my credit card. I searched, came across your blog and now I’m more confident about doing this.
Another advantage is once the balance of your loan is posted to the CC, there is no reason you cannot transfer that amount as you would with a regular cc to cc balance transfer. At the moment both of my cards (Discover and Chase) are offering a 2% transfer fee, but chase does not let you use checks. If I used this method, its possible chase might offer a 0% transfer fee promo which I could take advantage of to extend the time I have to pay off the loan.
Great thread,
So can anyone name specific cards that have 0% balance transfer fee AND comes with convenience checks? I can’t do USAA because I’m not military.
Here’s what I’ve learned so far:
Amex: doesn’t do convenience checks
Chase: doesn’t do them until 90 days after having an account which is usually after any 0% balance transfer offer expires
Citi: Doesn’t do checks
Discover: Does do checks, haven’t found a card that is 0% yet, though it could be out there.
Any card recommendations?
I’d love to know the answer to Jim’s question about any cards that offer the checks when you sign up. It doesn’t look like you can actually do any of this unless you already had a card for a while and they send you an offer. Like Jim, all of the new cards I looked into wouldn’t give me checks until after the transfer fee promotion is over. Even if you wait for them and then pay the transfer fee, this also cuts the amount of time you get with the 0% apr significantly. Would be great if someone could tell us if such a card exists or if this article is now irrelevant.
I don’t keep up on the new credit card offers available, so I can’t direct you to a card that has a good balance transfer deal with checks. In many cases the best offers come from cards you already have. If you don’t receive an offer, you can ask them if they have one and if it would include checks. In the past we have gotten checks from USAA and from Chase, I believe.
I have done this several times with balance transfer offers to pay off my credit card debt that I incurred while in school and post-divorce, and I have saved (after 3 years, 3% transfer fees) about $2100 in interest. For the card that I use it gives me the option to transfer online directly into my bank account, no paper checks or waiting required. The card itself is meant for balance transfers, so there’s typically an offer for 0% interest for 6-18 months (the longer periods typically have more like a 5% transfer fee, so watch out and do the math) that the company puts out about ever 6 months or so. It’s allowed me to put interest on hold so I can tackle my larger interest rate cards – about $3000 to go and then I can use it on student loans. Creditcards.com was helpful in finding the card that fit best for my needs.
So when you wrote the convenience checks to yourself, that didn’t show up as a cash advance on your credit card statement?
I currently have a student loan just over 100k and just applied for and was approved for two no-interest-for-15-months cards totaling 28500 dollars.
There are no fees or interest on balance transfers, but for cash advances the interest and fees are huge. I do have convenience checks that I got in the mail with these cards, but I’m afraid to use them for fear if I write myself a couple of huge convenience checks, it’ll be processed as a cash advance.
I am unsure how to verify to satisfy my own curiosity. How did you know it wouldn’t backfire on you and be a cash advance instead of a balance transfer?
I don’t recall the specific language, but it was pretty clear that the “checks” were how to take advantage of the balance transfer offer, at least in our case (both times). If you’ve got a doubt, then I would definitely call to verify with the card, because you certainly don’t want to get yourself in a bigger, more expensive mess with this strategy!
Thank you…seems like the CC banks are wise to all our tricks. I have found they all have either the 0% APR for a period of time OR they have the no fee balance transfer, but not both.
Even so, most of my cards have a 3% fee for balance transfer while my student loan has a 7.5% interest, so it makes sense to do a no fee balance xfer onto one card that charges interest immediately, then transfer that balance to a zero percent APR card that has a 3% fee but 18 months to pay it off.
But that’s just me!
I love this idea, but I have a question about the strategy. Weren’t you also paying normal student loan payments at the same time? Could you have managed both? Or by paying a lump sum payment did you basically pay ahead and save yourself some interest?
Depending on the answer I might actually try this. It sounds interesting.
Hi Jason! That’s a great question. We were on Income Based Repayment and because of our income level and family size we did not have any payments due. In fact, the whole time we were paying off our debt we never had a payment due because of IBR. If you have regular payments due you would definitely want to be more conservative with a plan like this because the last thing you want to be stuck with is having to pay interest on credit card debt that you were using to avoid student loan interest with! 🙂
THANK YOU for sharing this! I’ve been trying to figure out a way to do this for some time now and never thought of writing the check to yourself. Genius! Thank you again!
Hi Stephanie, love your blog! It’s inspiration for me as I embark on tackling my $57,000 student loan debt. I’m really intrigued by this strategy of paying off a chunk of it by transferring it to a 0%APR credit card for a period of time (in which I would faithfully commit to paying it off during that time:). I just read somewhere that the loans must be in default for companies to consider accepting a credit card payment. Was this your experience, or do you know more about this? Thank you!
Hi Paige!
You can’t pay your student loans with a credit card directly like you would pay your other bills with a credit card. What you CAN do is use a balance transfer check. You’ve probably received them in the mail with other credit card offers. They look just like a check. You write the check out TO YOURSELF. The money then goes into your checking account and you can do whatever you want with it. We put it directly toward our student loans just like we would make any other student loan payment. Then we make sure to pay off the credit card before the promotional 0% interest rate ends. I hope that helps!
I’m applying for a Chase Slate Card with a 0 balance transfer fee and 0% interest for 15 months online. How do I get the checks that you speak of?
They don’t have them for Chase cards until you’ve had your Chase Card 90 days, which means it would no longer be 0% APR. Bummer.
So can anyone name specific cards that have 0% balance transfer fee AND comes with convenience checks? I can’t do USAA because I’m not military.
Here’s what I’ve learned so far:
Amex: doesn’t do convenience checks
Chase: doesn’t do them until 90 days after having an account which is usually after any 0% balance transfer offer expires
Citi: Doesn’t do checks
Discover: Does do checks, haven’t found a card that is 0% yet, though it could be out there.
Any card recommendations?
Just applied for this card thinking checks would come with the card but was also informed of the 90 day rule. Really wanted to give this a shot, bit seems like we got this card for nothing.
My husband is all about trying this strategy until I tell him it’s too overwhelming for me, so all of the details and follow-through would be on him. Props to you for being able to pull it off! My little brain gets a headache just thinking about it 🙂
I’ve never considered this – it took me a while to even open up credit cards to get sign-on bonuses, so I think balance transfers are outside of my comfort zone as a user of credit. Lately I’ve been trying to simplify my financial life, so I’m moving in the opposite direction – forgoing some small gain (whether that’s getting a balance transfer or signing up for a card with great bonus or joining a bank with higher interest rate) so I don’t have to keep track of all this stuff.
I totally understand. It’s definitely not for everyone, especially if you’re in a season of simplifying.
We have done this! We’re at the tail-end of paying down our Citibank card, where we did actually do a transfer that had a transfer fee attached (though it was at 0% interest). We ended up doing that because we were struggling so much with Sallie Mae (now Navient) to pay extra payments on top of our automatic withdrawals of the minimum payments. We will finish paying off that card in July, and I am considering a new card to do that with (we never seem to get an offer from our current cards that involves a $0 transfer fee).
I was actually thinking we WOULDN’T follow this path again because with student loans, you can always put your payments on hold if you lose your job or have some other kind of emergency — but my husband recently was told he’ll have a two-year contract when his contract renews, so maybe it’s worth the risk again…. Any money saved is good money!
There are some perks to having the debt as federal student loans over credit card debt, so you definitely have to weigh the pros and cons.
For some reason, the link didn’t take in my original post
This is an excellent strategy, one that personally save me about 400 dollars worth of interest on payments. Objectively, that’s not much, but it makes a big difference when you’re fresh out of school.
For those looking for the right balance transfer card, I found CreditCardGuide helpful, as they aggregated a bunch of cards with favorable balance transfer rate
$400 is worth saving for me too!
Interesting thought! I considered paying my student loans with a credit card just to earn some points on the biggest payments that I make every month, but my student loan company charges a $15 fee for using a credit card which makes it totally not worth it. I did set up some recurring monthly expenses like Netflix and my phone bill on my credit card though since those are already in the budget and easily paid bills every month.
With balance transfers, you actually don’t get credit card points unfortunately. That would be A LOT of points! When we make a payment to the loan servicer, it is straight from our checking account though.
We did just this when we had some unexpected medical bills, only we decided to do the 0% balance transfer and $0 fee because our money was better off in our investment accounts earning interest and dividends than paying off the bills. We were able to bank roll the credit card payments and pay it off in a few months, and didn’t have to take any money from investments. Win, win!
That’s a great way to give yourself a little longer to pay off the bills. That’s nice that you had the money to back it up just in case.
I tried to do a similar thing but there are a few obstacles. The first being, my student loan was set on a 10 year repayment plan. This meant the lending companies had calculated all the interest for 10 years already, and made me pay off the interest first (basically within the first 3 years my payments when from mostly interest to principal only). Since I was still within the 10 years I wouldn’t have saved any money. Before I knew this however, I found out other problems. This is illegal according to both my bank and my lending company. I tried to attack this from both sides, by first seeing what my bank could offer in credit transfer and in loan rates. My bank asked what the loan would be for and when I said to pay off the rest of my student loan they explained they can’t give money for that reason because its illegal. Student loan debt is supposed to stay with your name even if you claim bankruptcy. If you pay off a student loan with a private loan or credit transfer and then claim bankruptcy your loan will be resolved, makes sense why they aren’t allowed to lend for that reason. I still thought I should be able to save some money, so I thought I could pay off my loan with a lower rate credit card which I would pay immediately pay and then collect the cash back points. I called and was able to make one payment for about $3,300. Unfortunately the card I wanted to use was at home and only when I was already on the phone on a break at work did I realize the only card on me I was willing to used had a very low limit. So I paid that and planned to call back the next day. I didn’t get to call back for 2-3 days and when I did the company was shocked someone had taken a credit card payment for so much. They couldn’t do anything because it had already gone through but they said that was not allowed, I even spoke to two people because I didn’t believe the first! They said they cannot take credit cards for payoffs, no exceptions. I’m assuming for similar reasons. Maybe I just had a horrible lending company? FYI the lending company was Chela who later was bought by Nelnet. I was only 18 when I agreed to these loans so I didn’t know much about finances. Luckily I was finally able to pay it off in the last year, 7 years out of school!
If you transfer student debt to a credit card with the intent to declare bankruptcy to have the debt discharged, then that is fraud and illegal. We’re definitely not doing that though. 🙂
This is what you’d call an advanced move, the equivalent of a knuckleball: very effective for the few who can pull it off, but most pitchers should stick to throwing fastballs for strikes. But if, as you said, you are hyper-intense, have no credit card debt and can reasonably expect to pay this off before the interest and fees kick in, then this can save some significant money.
Well put Blake. This definitely isn’t for everyone! If you’re doubtful, definitely stick with the fastball. 🙂