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Author: NaggingFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 308782  
Subject: Re: Low rate cc to pay off student loans? Date: 1/7/1999 12:40 PM
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I hate my college loans, too, but I agree transfering the entire balance to credit cards is a bad idea. Student loans are eligible for deferments, forbearances, and tax deductions. Credit cards - zip.

I might consider the following plan, but you'd have to run the numbers to see if it would cost too much (due to cash advance fees, etc.). I've fudged some things in the following plan (I don't have as much practice running these numbers as JBoa).

I'm rounding off some of the figures: $20K in loans, 7.5% paying now, 4% credit card teaser rate

And making some assumptions: $250/month loan payment, 6 month teaser rate, ignoring taxes because I don't know how to calculate that loss of tax deduction, and the cash advance fee because I don't know how much that would be.

Step 1: Borrow 6 months worth of student loan payments from the credit card ($1500). Pay those to the student loan (I would use 6 different checks with the coupons for each month individually so they won't mark you as missing payments).

Step 2: Each month pay the $250 plus interest(<$5) to the credit card. When the 6 months are up you should have paid off the credit card loan, and then you can close the teaser account and go back to paying the student loan.

What does this get you? Let's run some numbers.
If you don't play any credit card games, you will pay $1500 over the 6 months to the loan, and end up owing app. $19250. If you play the credit card game, you'll owe $19100. So you save $150 (minus the cash advance fee, minus the tax losses). This is assuming that the student loan company credits the payments as soon as they receive them (and doesn't hold them waiting for their due date). I think they do, but I'm not sure.

Has anyone tried this? I do have several strong caveats though. Absolutely you have to be able to pay off the cc loan. You should not use the card for anything else, and you must pay it perfectly on time or all of the monetary savings is lost. And you should calculate in the effects of the potential cash advance fee and tax losses. It does get much more tempting when you get those 0% offers...

-Megan

who's beginning to fear she's just justified a bad idea.
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