If you’re in the process of paying off student loans, paying interest is often the most difficult part. However there’s a method to eliminate interest completely by shifting a part or all of the student loan debt you have to the 0% APR credit card, but it’s not a safe choice for the majority.
Although transferring the balance of student loans isn’t a good option for the majority of people, it could be beneficial to those who are determined to pay off a significant portion of their debt in a short time. There are several options to transfer your loan to credit cards each with its own advantages and disadvantages.
To help you understand your options, let’s look at an overview of each of these topics as https://gadcapital.com/ notes
Transferring a student loan balance transfer to a credit card
Simply stated the way it works, a balance transfer to student loans uses the funds from the credit card company to repay your student loan during the promotion period. It is important to note that a balance transfer isn’t the exact same as refinancing through an individual lender to get lower rates.
Because the process itself can be quite complicated We’ve compiled the steps to follow for the transfer of student loan balances:
1. Choose the correct low-interest credit card. Take all the necessary details
3. Request a balance of a student loan transfer
4. Pay off your credit card balance prior to the time that when the APR of 0% period ends
1. Choose the best zero-interest credit card.
Before you can begin the process, you’ll require a credit card that has zero interest. While credit card APRs are generally considered to be very high Some issuers will allow an introductory rate of 0% which typically lasts up to 18 months but be aware that you’ll need to have a great or exceptional credit score in order to be eligible for these types of deals.
Even if you have a credit card with an offer period it’s probably sensible to create a new card to ensure you have the best period of time you can pay off student loans. In addition an increase in how much credit that is available to you could help protect your credit score, since it can stop your credit utilization from getting to a point that is too high.
However, this method is only useful only if you’re certain you’ll pay off the balance before the promotional 0% APR period is over. If you’re still in debt on your card by the end of the promotional period you may be penalized with lots of interest, and you’ll spend more than what you’d be saving.
Also, you must ensure that you get a card that will allow the transfer of balances for student loans. Although it’s not a complete list it does provide a list of credit card issuers that allow student loan balance transfers:
- Bank of America
- Capital One
- Wells Fargo
Take your time looking around and compare credit cards in order to locate one that allows the possibility of student loan balance transfer and 0% APRs during the first time during an introductory period. Also, search for cards that do not have or waive fees for balance transfers. If you locate a card you like, you may apply for credit card. After approval, you’re set to move on.
2. Take all of the needed details
Before you request an account transfer, be sure that you collect all the relevant details.
1. Determine the balance transfer amount you wish to borrow in order to pay back your student loan. Prepare an amount for balance transfers that you wish to ask for.
2. Make sure you have your student loan documentation in your possession. This includes your servicer’s name and account number that your credit card provider could require to complete an account transfer or to pay off your previous loan.
3. Contact the credit card issuer of your choice to inquire about their procedure in granting balance transfers to student loans. The issuer will be able to explain how to request an account balance transfer and how to use this to settle student loans.
Certain credit card companies issue the balance transfer check to servicers for student loans and some even deposit the funds directly. Certain companies deposit funds into the bank account of your choice, and you pay off your student loan there. Find out the method the credit card company uses and ensure that your student loan servicer can accept the payment regardless of how it’s received.
3. Request a balance of a student loan transfer
Once you are familiar with the aspects of the balance transfer procedure the next step would be to make use of the new credit card for the payment of the student loan.
Be aware the fact that credit limits may limit the amount you can take out to fund transfer of your balance from a student loan. To save the most money be smart and choose the loan that has the highest interest rate using the debt avalanche technique.
When you have requested the transfer of balance the transaction will be processed and then post. Be sure to have a receipt of the balance transfer to show that the student loan servicer received the money. Be sure that you don’t get involved in a cash advance through error.
4. Pay off your credit card balance prior to the time that the promotion at 0% APR expires
After the funds from the balance transfer been used to pay off your student loan and you’re ready to pay the balance on your credit card — and do it fast.
Making sure you are able to pay off your loan when the APR of 0% is in place is the most crucial aspect. It is not a good idea to be paying for your student loans with credit card high interest rates..
If you have an outstanding balance after the 0% APR offer ends, you’ll likely be charged a higher interest rate than the one you had originally for the student loan. Credit card rates typically are at or around 16% APR or more, which means any savings you thought of with an interest-free credit card can rapidly disappear due to rising interest charges.
Make sure you pay the extra amount on your credit card every month. Be sure to put this amount aside, and don’t add any new purchases to your balance.
The advantages of transferring a student loan balance transfer
You now are aware of how to go about making a credit card balance transfer to pay for student loans — but is it a wise decision for you? Like we said it is not always a good idea, however there are some benefits that could be derived from it. There are several benefits (though be sure to be aware of the potential drawbacks that are in the report).
You could save a few dollars on interest charges for student loans
The main benefit of a balance on a student loan transfer to credit card is the reduction in interest. The amount you can save will be contingent on the balance you’d like to transfer as well as your student loan’s rate of interest.
Perhaps you have a student loan of $10,000 with a 6.00 percent APR, and you’re just making the repayment phase. Transferring the loan to a credit line with an 0% promotional offer and then repaying it in one year could save you $3322 in interest on a standard 10-year repayment plan.
What could you have saved if you were to pay the loan off in an entire period of one year and did not make the transfer of balance? There would be some interest, but not a lot. If you were to pay enough per month to settle the $10,000 balance within one year, you’ll pay an interest of $301 (saving $3,021 over the course of a 10 year normal payment plan).
When you’re deciding whether to make a student loan balance move to credit line with APR of 0% or pay off your student loan in advance be aware that there are savings but they may not be as significant as you’d like.
You could be motivated to pay down debt
Another benefit to the use of a student loan balance transfer is that it will keep you motivated to get rid of a substantial amount in student loans. The time you are entitled to an APR of 0% on your credit card can be considered the sole period you are able to pay off the loan without accruing more interest charges.
The expiration date on your zero-interest rate, which is coming up and you’re faced with a deadline to reach. This will help you stay focused and accountable in your efforts to repay your debt. Repaying debt typically is a matter of changing your behavior and this is powerful.
The cons of transferring balances to student loans
A no-interest credit card to pay off student loans could lower the cost of interest however, the process could be too difficult for some people, and also comes with the possibility of high-interest rates if you fail to pay off the loan completely on time. Here are some possible negatives to be aware of.
You can spend a substantial sum on fees for balance transfer
A lot of credit cards charge a fee to make a transfer of student loan balances. The fee is usually around 3% to 5 percent on the amount of balance transferred.
The $10,000 balance on your student loan as mentioned previously. Should your credit card imposed an 3% balance transfer fee, you’d have to pay $300. If it was charged at 5 then you’d be charged $500. This will wipe out a large portion out of the savings.
Some credit cards do not charge the fee for balance transfers. If you’re unable to find an account that doesn’t charge a balance transfer fee, you can try reaching out to your credit card provider to inquire if they are able to reduce or waive the cost. Make sure to not mix a balance transfer with the cash advance option, since cash advance charges are often more expensive.
You may find that the transfer of an account with a large balance can be risky.
If you have a large balance, you’re forced to make huge payments each month in order to get ahead on the 0% APR introductory rate. This could quickly drain your cash flow and may be more costly than you think. In addition, you’ll have to have a high enough credit limit in order to apply this strategy.
Even if you have, for example the limit of $15,000 on the new card it is probably not advisable to use the entire amount with the transfer of balance. In fact, borrowing too much from the limit can increase the ratio of your credit utilization too significantly, which could negatively impact the credit rating.
If you plan to repay student loans using this method, ensure the balance transfer is 30 percent or less than the entire credit limit. For example, it could be an amount up to $4,500, which is the limit of $15,000. So, you’ll take the correct decision in your student loans and still protect the credit rating.
You may lose federal protections for student loans
If you take the entire amount of a federal student loan to the credit card of your choice, it’s converting the federal loan into the debt of a private credit card. In the process, you’ll be denied your access to the federal plan for repayment as well as forgiveness programs.
If you’re planning on the repayment of your income, such as the Public Service Loan Forgiveness or other federal programs, then transferring your balance on your student loan isn’t a wise choice. Similar advice applies to private student loans.
Certain private lenders allow you to delay student loans until you return to school, or defer the payment if you’ve run into financial difficulty. However, you won’t be able to access to these benefits for students when you convert your education obligation into credit card credit.
Other options to pay back student loans using a credit card
Transferring the balance of your student loan isn’t the only option to cut down on interest rates with the 0% APR credit card. Two options to think about:
You can pay for student loans using your credit card.
If your lender permits you to make student loan repayments using a credit card it could be simpler to make a larger payment using your credit card with no interest. Find out the amount you’ll be able to pay back before the promotional period runs out and make sure you are diligent in paying your bills from month to month.
There are a few student loan companies that lets you pay via credit card however, some will charge fees for this. When the transaction cost is higher than what you’ll pay with your no-interest card, this option might make sense.
Make use of the “big purchase method’
If you’ve put aside some money for savings, you may want to consider using the “big buy method” in comparison to the balance transfer method. For instance, suppose you’ve saved several thousand dollars to purchase items for your house. Instead of cash, make that large acquisition on your credit card. You can then utilize your savings to pay a lump-sum payment for the student loan. This method will not only aid in making an impact on the principal amount however, you could also earn reward points back from your credit card.
It’s important to make the minimum monthly payments on your balance every month, and paying off your major purchase prior to the time when the promotional 0% APR time runs out. In the event that you don’t, you’ll end up with a higher interest rate, which might make you regret using this strategy initially. Whichever method you choose be sure that there aren’t any hidden charges or other charges that can result in you paying more than you saved.
Refinancing your student loan as an alternative
If you have a student loan account balance, zero percent interest rate is a major benefit. However, it comes with some pitfalls, such as searching for the correct credit card, or coordinating with your loan servicer for your student. Additionally, you’ll need to insist on making regular payments in order in order to keep ahead of the date of expiration on your APR that is 0%.
There may be a better option to reduce student loan interestby refinancing your student loan using an individual lender instead of using credit cards.
The top student loan refinancing companies have rates that are as low as 1.87 percent. You’re likely to not be faced with costs such as the 3%-to-5 percentage balance transfer charge or an interest rate of 16% increase after the introductory rate has expired. You can also select an extended repayment time to make monthly payments more reasonable.
However, refinancing federal student loans means you’re not eligible for federal protections and programs and protections, which makes it not the ideal choice for anyone who relies on federal benefits. However, if you’re not in need of these programs –– or prefer to refinance only private loans, this method can save you cash on interest.
Before refinancing, make use of our calculator for refinancing student loans to determine how various rates of interest and loan conditions will affect your interest rates and monthly payment.
The reason why balance transfers to student loan debt aren’t typically worth the cost
What’s the main point in the case of the transfer of balances from student loans? It is possible to transfer the balance of the student loan onto a zero APR credit card in order to avoid interest (or to make use of an interest free credit card save on student loans by another method).
There are a few negatives to be aware of. It is important to ensure that both your credit card provider and the student loan servicer will allow this type of transaction. Also, you should consider the savings you could earn from interest-free loans during the introductory period and assess whether the costs associated with the fees for balance transfers could offset savings.
If you do your research to choose the most affordable credit card and then pay your account in full prior to the time the time that your 0% APR runs out and you can save on interest on student loans however, you’ll need make sure that the numbers are suitable to your specific situation.