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Trying to save some on student loan
Old 05-09-2014, 02:42 PM   #1
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Trying to save some on student loan

A couple of months back I posted a thread about my financial situation looking for advice and this is kind of a follow up to that:

Balancing financial priorities

Really my only question is around my student loan (which if you dont want to read the other thread is 118k at 7%) which is largely unchanged at this point.

I am planning to refinance with SoFi to a 10 year loan at 5.875% which will help.

But I also got something in the mail today that normally I would throw away, and that is a check from one of my credit card companies that would allow me to borrow against my credit (credit limit of 21.5k) for .99% APR for a year. After that it would go to 10.99% APR.

This got me thinking about ways I could use the .99% APR loan against my card to help reduce some of the student loan debt.

In general I am reluctant to use debt like this, but I figure the .99% APR may be a good way to save some money.

A less risky option I was thinking about was using it to pay my next year's worth of car payments off now and just pay back the credit card over the next year, and keep the interest payments current on the car. But I'm not sure there is much benefit there either.

I don't feel like I have to do anything with this and am perfectly fine doing nothing, except keeping my current payment plans. I ultimately know the bank wants me to get a balance on the card with this offer and not pay it off in a year, so my ultimate goal and restriction is that if I do anything it must be paid off when the .99% APR expires, and it must save me interest on my other debts. However, I thought it may be worth exploring since .99% APR is better than the current interest rates on my debts. But if doing nothing is the consensus best financial move, fine by me.

Any thoughts, ideas, or experiences doing something like this? If it matters my credit score is good (over 750).

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Old 05-09-2014, 03:09 PM   #2
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I would check the fine print if it's an access check. Many will charge you a 3%-5% transaction fee off the top in addition to the monthly .99%. I successfully have played the low fee transaction game over the years, but you always need an "out plan" in case you don't have a year two rollover. If there is a transaction fee in the fine print (which most do) I do not know if I would go down that path, especially with 20k at stake, considering your loan rate is 5.875%.

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Old 05-09-2014, 09:54 PM   #3
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Sounds like a plan, But you must pay off the CC loan at end of year, else interest that was forego in the 12 months could be reinstated.

Also, how is the student loan calculated? Does extra money go to prinicipal or does it go towards advance monthly payments? Do you make constant dollar monthly payments till student loan amortized?

Student loan interest is tax deductible below 78,000 (?) income/22% tax bracket. So if you are in this bracket, the effective rate is close to 5%.

Is this a commericial student loan or a federal guaranteed loan?
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Old 05-10-2014, 06:41 AM   #4
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The CC scheme is not a horrible idea if there are no transaction fees and if you pay it off when due. If you did 10% or 15% of your loan at the 0.99% then it would lower your effective rate quite a bit.

Going back to your original thread, I would prioritize getting rid of this student loan before retirement savings beyond that needed to maximize the match. You could also dial down the HSA savings some and put that cash flow towards paying down the 5.875% (non-deductible?) student loan debt.
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Old 06-15-2014, 02:28 PM   #5
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Sorry to bump, but there is another question about these pesky student loans that has come up I am interested in some feedback on.

As a follow up, this is currently a federal guaranteed loan. I ended up doing nothing with the credit card option because there was a 4% origination fee and I just didn't like the risk on that. These are federal guaranteed loans, but not tax deductible as my income is to high.

I have not had the opportunity to really go forward and refinance with SoFi, but I did start looking at the options a bit more clearly.

I can either refinance to the 5.875% fixed rate referenced above or a variable rate of 3.91%. The variable rate is tied to the 1 month LIBOR rate and is capped at 8.95%. I realize no one can predict the future of interest rates, but what are people's opinions of variable interest rates? Would anyone take a variable rate option on a 10 year loan? I will likely pay it off in less than 10 years, but the 10 year loan is probably the most realistic option, plus I would like to maintain some cushion should I run into some financial hardship and need to stop making extra payments on the loan to deal with the hardship.
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