This morning I shared the exciting news that I’ve finally paid off two more of our debts! YAY!!!!
I’m sure many of you wonder(ed) what this means in terms of our order of debt attack. Which debt will we target next?
Financial folks have made a strong case for turning our attention to the student loan debt (due to the super high interest rate). I’ve maintained my opinion that the car loan debt is more personally motivating and, therefore, my favored option.
About a month ago I finally broke down my largest student loan debt into all of its constituent parts, showing you exactly how high each debt is and what its associated interest rate is (see here).
I studied all our debts, interest rates, etc. After much thought and consideration, hubs and I have decided to do something a bit drastic with my highest interest rate student loan that is sure to be a bit controversial.
We decided to do a balance transfer.
The deed’s already been done. I called all my credit cards to see whom would do a balance transfer on a student loan (many will not), and found that my Capital One card would be willing to do a transfer at 0% APR for 12 months, with a 2% initiation fee. I sat on it for several days, called back 2 separate times to ask about getting a reduced initiation fee (which they declined), and finally decided to do it anyway. My highest APR student loan is 8.5%, with a balance of $5,820.95. To this I’ve added the initiation fee ($116.42) for a total balance of $5937.37. To pay this in full within 12 months I’ll be adding a $500 monthly debt to my debt list (in addition to my other student loans, the last remaining medical bill, and my car loan).
Being that I’ve knocked out so many other debts, I feel completely comfortable with the 12-month timeline. There is absolutely nothing that will prevent us from being able to pay this loan in full by the time April 2016 rolls around. In the meantime, I’ll also continue paying extra on my car loan, while paying lower amounts (just enough to cover interest) on my remaining student loans.
I like this balanced approach for several reasons:
- It gives me a smaller, more manageable-sized debt to deal with.
- It will save me hundreds of dollars in interest.
- It makes it easy to pay extra toward this single loan (instead of having to call Navient every month to try to apply funds toward this account, I simply apply money toward my Capital One card online, which is super easy since I also have a Capital One 360 account <<refer a friend link).
- It allows me to continue making big progress on my car loan (which is my personal preference) while also simultaneously making big progress on my highest interest rate student loan (which is the more financially sound decision).
Now, I want to acknowledge that doing a balance transfer to pay off a student loan is inherently risky. Stephanie from Six Figures Under has actually written several posts on the topic that I think do a great job of explaining the pros and cons, and in ultimately defending her position of doing the same thing (she and her husband have now successfully paid off one balance transfer and have just initiated a second balance transfer).
Doing a balance transfer to pay off student loan debt is not for everyone. I’m in a unique situation in that I have a lot of extra wiggle room in our debt payoff budget. Our minimum payments are now down to $478/month (that’s $453 minimum on student loans, and $25 minimum on medical bills; I have no payment due on the car loan until April 2016). My goal is to keep paying $2,000+ toward debt each month. But if we got in a bind, it’d be very easy for me to reduce extra debt payments in favor of getting this balance transfer loan paid off quickly.
So there’s my reasoning and rationale about the topic. I fully understand that some of you will simply be against balance transfers no matter what (and it’s your right to have whatever opinion you want on the matter). But for me and my family, this is the right choice. I’ll finally be taking my student loans off the back-burner to become a bit more of a priority. I’ll simultaneously continue making big strides with my car loan debt and will continue chipping away at our other remaining debts. I’ll also be saving a ton of money on interest. It’s a win-win-win all around!
Have you ever successfully completed a balance transfer before? What was your experience like?