I recently completed paying off a student loan. I didn’t do it purely through sending money to my student loan servicer, though. I engaged in a bit of what, I suppose, would best be called arbitrage?
I applied and was approved for a Chase Slate card with about a $5,500 credit limit. You know the deal, 0% balance transfer fee, 0% APR for 15 months. The catch: if you charge anything else on the card other than the balance transfer, you’re fucked. The entire balance (including any balance transfer) will accrue interest unless you pay it off after your first statement. So if you try this out, make sure to never use the card except for your balance transfer.
So what were the details?
I had a loan with $4,000 remaining. At the minimum payment (which I was well above) I would pay about $411 in interest before paying off the loan. I originally calculated out about $600 in interest, but I had made some large payments because of the lower available credit on the Chase Slate.
So… I balance transferred $4,000 to my Citi Double Cash card (a bank known for willingness to issue you a balance refund check) from my Chase Slate balance transfer promotion. In about a week, the funds showed up in my Citi card. I opened up an online chat window and requested a balance refund check. No questions asked, they sent it out to me immediately. Took about 3 days to arrive. One note: Chase Slate only lets you balance transfer from another credit card, not the student loan directly – fine, no problem, my Citi Double Cash had $0 balance as I only use it for a recurring phone bill that is auto-debited out of my bank account.
Once I had the check from Citi in my hands, I deposited it to my bank account. I then sent that money to my student loan servicer and achieved paid-in-full status on my student loan. Great!
So why did I do this? Because I wanted to save the $411 in student loan interest and I am already well above the available student loan tax deduction anyways. I am now paying of the balance transfer instead of the student loan at a slightly faster rate than I was the student loan in the first place. So long as this is taken care of within fifteen months (I’ll have it done in about seven), I’ll pay $411 less in interest than I otherwise would have.
Once this one churn is paid off, I will probably investigate to see if I can find another 0% fee, 0% APR/x months balance transfer card to do this again for another student loan. There are many cards out there with a 3% balance transfer fee – this is less worth it to me. My student loans are down to 3.9% APR other than this one loan I have discussed here, which was 7.9%. So unless I can find another 0% fee card, I doubt I’ll pull the trigger.
If there is a next time, I will probably try to do a larger value than I did this time. I’ve got a good enough balance elsewhere that I’d be happy to save another few hundred (maybe a thousand) in interest.
What are the risks, why is it worth it? Well… I like to tinker with my finances. It is fun. I am saving money. The risk, though, is not to be taken lightly. By balance transferring, I am putting myself at risk of the credit card company’s APR if I fail to repay on time. This could of course happen if I lost my job and burned through my emergency fund, but this smaller $4,000 attempt should be manageable.