Balance transfer with 0% APR to pay off student loans good idea?

[VRW]

Hi everyone,

I'm new to the MyFICO forums but I have been a subscriber to Score Watch for the past 2 years. My Equifax FICO score is 795. I don't know the other two.

Currently, I have about $10,000 in Wells Fargo private student loans at 7.25% interest rate and about $10,000 in Great Lakes (government) subsidized and unsubsidized loans at a rate of 5-6%. I received an offer from my Capital One credit card to use a checkbook with a limit of $15,000, 0% APR for 12 months with a transaction fee of 2%. It seems I could save some money in interest.

I was wondering if it would be a good idea to do a balance transfer to pay off $15,000 of my student loans. I will definitely be able to pay off the entire $20,000 debt in the next 6-7 months, but I don't know how doing something like this will affect my credit score, since it appears I will be transfering debt from an installment account into a revolving account. My main concern with this is that I will be filling out a FAFSA application in January/February to go to grad school and I'm afraid that if this balance transfer hurts my credit score, my interest rate for grad school loans will be very high. Can anyone offer some advice?

Thanks

[Luscher]

If you are going to be able to pay it off in 6-7 months I would just leave it how it is now.

[SCF]

I would reccomend against refinancing student loan debt with a credit card balance transfer.  In the case of your federal loans, you lose a lot of benefits and protections - like the various payment plans, deferment while in school, and the ability to rehab if you default.  I know you plan to pay off these loans in 6-7 months, but emergencies happen, and you may find yourself wishing you had the flexibility of a federal loan instead of a credit card payment.  That peace of mind is worth a small amount of interest over a few months.

The other reason is the potential negative to your score.  You'll be driving your utilization up quite a bit, and util is a large part of your score.  You could see a noticable score drop just to save a few hundred dollars - and if your score was borderline, it could lead to adverse action from other lenders.  Some sensitive CC companies will consider cutting your limits if they see you max out another card.  If you have great credit, it's unlikely to happen, but if you have other negatives, it could be a real concern.

Also, make sure you do the math of the 2% fee vs. interest.  Depending on how you pay off the loans, you may not even be saving that much money.

[VRW]

That makes perfect sense. Thanks for your advice! I didn't think I would be saving that much anyway but it was tempting enough to look into.

[Luscher]

what you should do now is start paying down the interest. I am not sure how much you have now but you said you might have all of it in 6 months. why not put everything you can towards it now so your daily accrued interest is even less?

[VRW]

Paying it down is exactly what I'm doing right now. I pay about $3000 - $3500 per month, first towards the higher interest private loans. I also put about 4% of my pretax income into a 403b and I end up with no other savings at the end of each month. By the end of May next year, I should be debt free until I take out another loan for grad school in the fall :\

[Jazzzy]

The death benefit of having the loans cancelled upon your death is better than having that amount go to a credit card company out of your estate. Don't mean to be a Debbie Downer...but things happen. I have a brother-in-law whose student loans were cancelled when he died in a car accident, so I always think about that possibility. He left some stock holdings behind, and at least that went to his family instead of going to pay off a credit card.

[Rikku]

I agree with the advice that you've been given already. SLs have a lot of benefits that other types of debt do not. Even if you'll pay more in interest, it makes more sense to keep SL debt as SLs so that you keep those benefits. While you intend to pay them off soon, you never know what might happen in the meantime.

[alvon123]

---

@Luscher wrote:
If you are going to be able to pay it off in 6-7 months I would just leave it how it is now.

---

+1