Refinance Student Loans to a Credit Card with 0% Interest

How to refinance student loans to a credit card and save thousands in interest

If your credit rating is even midway first rate, you nearly actually get near-daily credit card presents within the mail. You might have paused (earlier than shredding the colourful bits of rubbish) to ask your self: is there a way I may use these? Could I refinance my student loans to one in all these 0% credit card presents? Yes good friend, you can refinance student loans to a credit card. I’ve executed it twice, and in 4 other ways! (Because I needed to determine a lot of other ways to do it for you. You don’t really must do it 4 other ways your self. More on that later.)

Credit rating not so scorching? Refinancing your student loans to a credit card might be not for you… but. But don’t fear, you’ll be able to work on bettering your credit rating whereas making common funds to your student loan (which may even assist!) and are available again to this later.

Why Would You Want to Refinance Student Loans to a Credit Card?

Sounds dicey, doesn’t it? Credit playing cards are unhealthy information bears and this looks like leaping out of the frying pan into the fireplace. But really, it may be executed (comparatively) safely. It may be an effective way to repay student loans sooner and pay much less curiosity. Many, many hundreds of {dollars} of curiosity, probably.

By transferring a few of your student loan steadiness to a credit card, you’ll be able to make the most of a 0% curiosity supply. You’ll pay no extra curiosity on that a part of your student loan. That’s a really tempting deal with for these of us who’ve been slogging together with 5%, 6%, 7%, 8%+ rates of interest on student loans. Especially if, like me, you’ll be able to’t discover any conventional student loan refinancing with higher charges than your present loan charges. My student loans have been all at fastened rates of interest of 4.75% or 5%. I by no means discovered a standard refinancing loan a lot decrease than that. And even when I had, it by no means would have been as little as 0%!

By making the most of a 0% curiosity promo supply and saving all of that cash in curiosity, you possibly can shave years off your loan reimbursement schedule.

Let me present you the way for me, I’ve set myself as much as save $9,218 and 14.4 years off my student loans, utilizing credit playing cards:

My First Student Loan to Credit Card Refinancing

The first time I did this was in 2015. I tackled my Federal Perkins Loan which had a steadiness of $3,784 left on it at a 5% fastened rate of interest. I used to be capable of refinance $3,148 of that onto a 0% curiosity credit card. Wow golly what a distinction that made!

Chart of the savings from refinancing my first student loan. $427 dollars saved!
Student Loan Hero’s Lump Sum Extra Payment Calculator gave me the news on the curiosity I saved with my credit card refinance. I couldn’t use a refinancing calculator as a result of they didn’t enable for 0% rates of interest, imagine it or not! (Tap or click on the picture to enlarge)

I did this credit-card-refinance in February 2015. My unique payoff date for that loan was alleged to be July 2019. That means I nonetheless would have been paying that loan to this present day if I hadn’t executed the credit card refinance. Instead, I used a 36-month 0% curiosity credit card deal (what what!) and I paid it off in 35 months. So I shaved 18 months off my reimbursement, and saved $427 in curiosity alongside the way in which. Yaaaaaaaaasssss!

My Second Round of Student Loan to Credit Card Refinancing

I completed paying off that first 0%-interest credit card refinance dealie in January of this 12 months. But I nonetheless had different student loans (Federal Stafford Loans, consolidated down into two loans: Subsidized and Unsubsidized). I used to be itching to refinance to 0% once more and save much more in curiosity. This time, I focused most of what was left of my unsubsidized student loans. That’s as a result of these baddies will proceed to rack up curiosity, even when I put them into deferment to return to high school. Ugh!

I wasn’t capable of finding a promotional credit card price for 36 months like final time (narts!). But I discovered loads of methods to get 15 months of 0% curiosity. I went rather more bold with the loan quantity this time round…Chart of the savings from refinancing my student loans to a credit card a second time. $8791 dollars saved!

With $12,365 refinanced from the unsubsidized loans to the 0% curiosity credit card, I’ll be saving a whopping $8,791 in curiosity! And by placing my debt data into the Debt Snowball desk on Undebt.it, I can see that by “snowballing” the fee from the credit card (as soon as it’s paid off in June 2019) into the rest of the unsubsidized student loan, I’ll have that loan paid off in July 2019—173 MONTHS EARLY!

READ:   How to Refinance Your Discover Student Loan
Undebt It Debt Snowball After Credit Card Student Loan Refinance
My “snowballing” debt funds as seen in Undebt.it. By rolling the fee to the subsequent loan every time one is paid off, I’ll be debt free in 2022! (Tap or click on the picture to enlarge)

Now you’re wanting on the above and saying “Wait a second Stephonee… how in the heck are you gonna drop a $10,462.64 extra payment on that credit card in June 2019?!?” That’s a extremely good query, and the reply is: I’ve already bought that cash. Mostly, from an enormous ol’ tax return this 12 months. (If you’re screaming at your monitor “But tax refunds just mean you gave the government an interest free loan!!!” click on right here to be taught extra.)

Note: I additionally examined out two different methods of refinancing to a credit card on the similar time. That’s why the overall quantity I refinanced throughout this spherical was $12,365 and never simply the $7,966 from utilizing the tax refund. $1,000 was refinanced utilizing the “Plastiq Method” and $3,399.68 was refinanced utilizing the “Normal Spending Method.” More about each of these strategies in a while on this submit.

But that does change the equation considerably. Because I already had that cash, I may have merely thrown the tax refund on the student loan and never concerned a credit card in any respect. We need to calculate the cash saved in comparison with if I had executed that, after which see what the distinction can be.

The Difference Between Just Paying a Big Chunk Off and 0% Interest Refinancing

My tax refund: $6,378
+ 5% curiosity I’ll earn in financial savings in the course of the credit card promo interval: $398.63
+ 12 months of minimal funds to the credit card: $1,189.19
—————–
Equals $7,966 refinanced from the student loan to the credit card. (Rounded to the closest greenback, as a result of that’s what the calculator will settle for)

So what we’re really evaluating is a lump sum fee of $6,378 and the refinancing fee of $7,966:

Interest $ Saved Repayment Time Saved
Lump sum fee of $6,378: $5,600 59 months
Credit card refinance of $7,966: $6,607 71 months
Difference: $1,007 12 months

I don’t find out about you, however a distinction of over a thousand {dollars} and 12 months of funds was undoubtedly definitely worth the credit card software, 1 cellphone name and the two further bank transfers I’ll need to do for the credit card refinancing. Even a conservative estimate wouldn’t put all of this further “work” at over an hour, and I actually don’t earn $1007 per hour at every other job I do!

Okay, this all appears nice. Loans paid off early, hundreds of {dollars} in curiosity saved! Why would anybody not do that?

Reasons NOT to Refinance Student Loans to Credit Cards

#1 – You’re already carrying credit card debt

This isn’t gonna be just right for you in case your student loans aren’t your “biggest fish to fry.” Unless the credit card debt you’re carrying is one other 0% promo and also you’ll have it paid off earlier than the promo expires. But should you’re carrying a revolving steadiness at 12%, 18%, and even increased? Nope, good friend. You must give attention to THAT debt earlier than doing fancy student loan maneuvers.

#2 – An emergency would imply that you simply couldn’t repay the credit card on the finish of the promo

If you’re considering “I could totally use a lump sum to pay off the whole credit card before the rate expires! I’ve got that money sitting in my emergency fund!” then nope, cease, nope. That’s not a superb search for you. If paying off this credit card steadiness would depart you weak to an actual monetary emergency, or you would need to let the promo expire and begin paying sky-high rates of interest to guard your emergency fund, then don’t do that.

#3 – You want your credit rating for one thing earlier than you’ll be paying off the steadiness

Are you planning on doing any of the next whereas carrying your student loan steadiness on a credit card?

  • Get a automobile loan
  • Get new automobile insurance
  • Rent a brand new residence/condominium
  • Get a mortgage
  • Do precise refinancing on a loan
  • Apply for jobs
  • Do credit card “travel hacking”

If “yes” to any of the above, you then may wish to maintain up, wait a minute. Because this “refinancing” to a credit card can have a critical influence in your credit rating, which may jeopardize any of the above actions (or simply make them dearer).

To show my level, I current to you my credit rating earlier than and after my newest spherical of “credit card refinancing:”

Stephonee's Credit Score Before and After Refinancing Part of a Student Loan Onto a Credit Card
In this graph of my credit rating (courtesy of WalletHub), you’ll be able to see that I used to be using excessive with a rating of 806 earlier than I did my credit card refinance in March. Then it dropped all the way down to a low of 727. It’s solely just lately begun to bounce again as I make the minimal funds.

#4 – You’re Enjoying Any Federal Student Loan Protections

Just like “traditional” student loan refinancing, whenever you “refinance” a federal student loan to a credit card, you lose any and all federal student loan perks/protections. That means you lose:

  • Access to income-based reimbursement plans
  • Public Service Loan Forgiveness
  • And the power to defer your loans as a result of unemployment or whenever you return to high school

You’ll solely lose these perks on the quantity that you simply refinance onto a credit card, after all. But should you’re depending on them, pause and take into consideration what you’re giving up should you refinance.

But assuming you’re like me and not one of the issues above apply to you, it’s possible you’ll now be questioning:

How the heckin’ do you pull off a student loan to credit card refinance, anyway?

The Four Methods of Student Loan to Credit Card Refinance

Method #1: The Direct Balance Transfer Method

The most straight-forward methodology of the bunch has to come back first. With this methodology, you get a card with a 0% promo rate of interest (with the longest phrases for that price potential) and a $0 steadiness switch payment, and you then name up that card firm and provides them your student loan data. They switch the steadiness (as much as your credit restrict on the brand new card) by sending a test on to your student loan firm.

There’s a catch, although (after all there’s!). Not all credit card corporations will do a steadiness switch from a student loan, so you must do your analysis earlier than you apply for the cardboard within the first place. According to WalletHub, which means getting a credit card from one in all these corporations: Bank of America, Barclaycard, Capital One, Citi, Discover, PenFed, USAA, U.S. Bank, Wells Fargo, or SunTrust Bank. You must also name the cardboard firm earlier than making use of (or use their reside chat function). Ask if the steadiness transfers are restricted to different credit playing cards solely or not.

Method #2: The Big Purchase Method

This is a extra “once in a lifetime” method, however when the chance comes up, it really works actually effectively. First, you will need to save up a bunch of cash for one thing you’re going to purchase. (Like home equipment or furnishings—in my case, it was a sofa. Saving Sherpa as soon as purchased cows on 0% curiosity, which might additionally completely work for this.) When you go to purchase the merchandise, they give you 0% financing for a ridiculously very long time (I used to be given 36 months, however now I’ve seen the identical firm providing 48 months!). You learn the nice print rigorously to verify there aren’t any “gotcha”s. If there aren’t any, you settle for the 0% financing possibility and cling onto your money.

Then, you throw that money you stored on the student loan as an alternative. But that lump sum of money may not fully wipe out one in all your student loans. In that case, you’ll must hold making the minimal fee on the student loan and make the brand new minimal fee on the factor you bought. So be sure you can afford to do this each month till one in all them is paid off.

Method #3: The Plastiq Method

This is a very easy methodology. You get a credit card with a 0% buy APR promo price after which use a fee processor like Plastiq to ship further funds to your student loan. Plastiq is a service that allows you to pay with a credit card for issues that might not usually enable you to take action. If you will discover a card with a 0% buy APR promo price and rewards, you’ll be able to even earn somewhat money again with this methodology.

Alternatively, you’ll be able to put an enormous Plastiq fee to your student loan on a superb rewards credit card you have already got (with no promo price). Or on a brand new card that you simply’re attempting to earn a sign-up bonus on. Then use a 0% steadiness switch card to roll the steadiness from the rewards card to 0% curiosity. Tricksy!

The draw back? Plastiq has a 2.5% payment for funds. Now, that’s in all probability quite a bit decrease than your student loan rate of interest, so it could nonetheless make sense to do. If you’ve bought a 2% rewards card, the payment is almost cancelled out by the rewards (lowered to 0.5% or $5 per $1000 in funds).

Plus, there are methods to severely cut back Plastiq’s charges. First, the entire hyperlinks to Plastiq on this submit include my referral code, which implies you can make $500 in funds with no payment (after you make your first $500 in funds and pay the payment on these—in different phrases, it reduces the overall payment in your first $1000 in funds to 1.25%/$12.50, which is tremendous affordable and may be cancelled out through the use of a rewards card). Just ensure that whenever you enroll that it exhibits the referral code “898826.” Once you’ve signed up for Plastiq, you get your personal referral code to present out, which might earn you extra payment waivers.

Method #4: The Normal Spending Method

Does your regular on a regular basis life have you ever placing quite a lot of spending on a rewards credit card after which paying it off in full each month? This could be the strategy for you. Maybe you must pay in your personal well being insurance out of pocket every month (like I did). Or you simply have quite a lot of different crucial bills that may be paid with a credit card.

To use this methodology, as an alternative of paying your common card(s) off in full, you’re taking one month’s steadiness and do a steadiness switch onto a kind of no-fee 0% steadiness switch promo playing cards. Or, you get a 0% buy APR card and swap all your spending to it. Either manner, you then take the money you’ll have despatched to repay your credit card(s) in full, and ship that to your student loan as an alternative (minus the quantity wanted to make the minimal fee on the promo card!!).

The draw back to this methodology is that you simply’re restricted to the quantity of your regular month-to-month spending. If you employ a steadiness switch card, you may have the ability to get two months of spending in, relying on how lengthy you must make the steadiness transfers. For the 0% buy APR card manner, you possibly can probably have as much as a 12 months (nevertheless lengthy the promo is for). Of course you’ll be restricted to the credit restrict of that card (and in my expertise, the 0% buy APR credit limits are decrease than the 0% steadiness switch credit limits).

Comparing the Four Methods

If the textual content above made your eyes glaze over, otherwise you’re nonetheless unsure you perceive how the 4 strategies evaluate to one another, concern not! I’ve made a handy-dandy comparability chart for you:

Refinance Student Loans to a Credit Card with 0% Interest - Comparing 4 Methods

You know what jumps out to me from this chart? There’s no good methodology to doing this. They all have their execs and cons, and actually it’s about selecting one of the best methodology in your scenario.

I personally tried all 4 strategies. I began with Method #2 (The Big Purchase) in 2015 when alternative struck whereas I used to be shopping for my sofa. Then I attempted Methods #1, #3, and #4 this 12 months, just about so as to write this submit. If I weren’t attempting that will help you determine what methodology works finest, I personally would have simply used Method #1. (To hold it less complicated.)

Do I’ve a favourite methodology? Yup. It’s #2, the Big Purchase. The size of the 0% promo interval is what seals the deal for me. 36 and even 48 months of no curiosity?!? SIGN ME UP! But I’m not keen to make large purchases simply to do it—that’s loopy discuss.

But I’ll in all probability use Method #3 (Plastiq) once more sooner or later, because it’s extra simply executed periodically than every other methodology. Since I can use it for “travel hacking” or simply make a random fee without cost if I obtain a Plastiq referral, it has quite a lot of potential for me.

Your Turn

What do you consider all this “refinancing a student loan onto a credit card” enterprise? Think I’m loopy for doing it in any respect? Want to know much more about one (or all) of the strategies I used? Let me know within the feedback beneath!