How a balance transfer is saving us $1,350 on our student loans
A 0% balance transfer is a powerful thing when used correctly. A balance transfer is exactly what it sounds like. It allows you to transfer a balance from one creditor to another. The benefit is holding that balance at a promotional rate like 0% interest for 12-18 months. And there is typically a transfer fee of 3-5%.
This isn’t something new for us. We’ve used them in the past to bring our credit card interest rates from 18-24% down to 3%. Sure, the promotional rate was 0% but I say 3% because of the transfer fee. The balance is paid down much quicker when you combine the lower rate with the same payment or in our case, an even larger payment. I was hesitant in doing this for the student loans because I wasn’t sure it was worth it for a 2.5% savings. Our student loans are at 5.5%. However, when I saw one of our cards was offering a 0% BT with 1% transfer fee, I decided to pull the trigger!
We maxed the card out at $19,800 to stay below the $20k limit when the 1% transfer fee got added in and it has a 0% interest rate through November 2020. The true interest rate is even lower than 1% since we locked that in for 17 months! The math on the savings calculates out to over $1,350 less in interest payments from July 2019 (BT date) through the end of November 2020. Should we just pay off more debt with those savings or buy you a Louis Vuitton purse? LOL!
For everyone else: Is a balance transfer something that would be able to benefit your debt situation? It would be in your best interest to pay less interest and pay off your debt faster. However, you do need to be careful or smart. You cannot do a balance transfer to lower your necessary payment so you free up that money to spend more. I’ve put together a sheet you can use to calculate out how much a balance transfer could save you. You can sign up for it below. If you need help with it or want to discuss it with me, schedule some time with me.