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converting student loan to credit card debt.

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Money Talk > Credit & Loans

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gmany
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converting student loan to credit card debt.  Reply with quote  

This is exactly what I am considering, well already implementing.
I have a 28000$ in student loan and 8000$ in credit card debt out of college.

I started transferring the 28000$ to a several promotional 0% based credit card to save on the interest. Since my credit history is close to excellent i do get a 0% promotional offers daily in the mail. I have already transferred 10k to my existing credit card thru promotional 0% checks and planning to transfer the rest amount by getting 3-4 new credit cards. Since it is not possible to pay the student loan payment though credit card (not more than minimum payment), I am using a convenience check to transfer the money to my checking account and paying my student loan through checking account.

When the promotional APR ends, I am going to keep transferring cards to more new cards with 0% and close the old ones that has expired its promotional period. With making payments about 1000$ each months in credit card payments, I would expect it to pay it off in 3-4 years.

I know there are several drawbacks exist: opening a new card will somewhat lower my credit score but I believe it is not bad as making late payments or any other harmful activity. But the savings over the years will be worth, if I keep my student loan in its current lender with apr of 7.22% I will be paying about 8000$ in interest during the lifetime but if I successfulyy maintain the transferred amount in 0% credit cards till it is paid off, I 'll spend less than 1000$ in transfer fees.

Another benefit of transferring student loan to credit card is that in case of bad times, like bankruptcy, student loans are much harder to charge off, compared to credit card debts.


What do you think?
Post Mon Nov 19, 2007 9:27 pm
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pf101
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I think this is a horrible idea. Seriously. Really, really, really bad. If one of my clients wanted to do this I'd have a fit and probably stop working with them.

You are making HUGE assumptions and you know how those usually work out.

1 - 0% balance transfers are not guaranteed. What do you intend to do if/when they run out and your student loans are now at 19.9% interest?
2 - with student loans, if you're late, you have to make a payment, but your whole balance won't revert to 20+% interest. If you do this, make 100000% sure you are never even a minute late.
3 - the fact that you're even considering BK in the equation is dodgy.

The fact that you already have $8k in credit card debt doesn't speak well so I think taking on more credit card debt is dangerous.

It's your money, your future, but the odds of this not blowing up in your face at some point are, IMO, slim. Better to get on an aggressive payment plan and see what you can do to lower your existing rate.

Personal Finance 101
Post Wed Nov 21, 2007 3:40 am
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gmany
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Appreciate your advice plus I have some questions from you:
What do you mean by BK?
What type of business you're involved in? You have said that you wont be working with me. I guess you're lender?

About late payment, I wont expect to make any late payment, I have carried my cards for 8 years and never paid late in the past.

I make more than 50k annually, so odds of getting behind is slim.

Now is it still bad idea?
Post Wed Nov 21, 2007 11:28 pm
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pf101
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 Reply with quote  

quote:
Originally posted by gmany
What do you mean by BK?


BK = Bankruptcy

quote:
What type of business you're involved in? You have said that you wont be working with me. I guess you're lender?


I'm a financial planner.

quote:
About late payment, I wont expect to make any late payment, I have carried my cards for 8 years and never paid late in the past.


There's a first time for everything and it's not always going to be your fault.

quote:
I make more than 50k annually, so odds of getting behind is slim.

Now is it still bad idea?


Yes.

Personal Finance 101
Post Sat Nov 24, 2007 3:07 am
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rockhound
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Managing money  Reply with quote  

"I have a 28000$ in student loan and 8000$ in credit card debt out of college. "

I think your first priority should be to knock out the $8,000 in credit card debt. If you feel that you have so much disposable income, there is really no excuse to have this much debt on a credit card.

I would also advise against playing the 0% promotional offer game. You have to realize that the bank can change the terms of your CC agreement at will. Thus, you can't count on having 0% interest, and the freedom to transfer balances, indefinitely.

Which brings up your plan---you are trying to engineer yourself into a far worse financial situation. Instead of $28,000 at a student loan rate, you could end up with $36,000 at 23% when this financial juggling act falls apart. You're going from bad to worse, because you're creating a huge potential pitfall where none existed before. It's an un-necessary risk that is totally out of proportion to the potential rewards of paltry savings.

The responsible thing is to wipe out interest by paying extra principal on the loans. You may pay $8,000 interest over the full term of the loan, but why not calculate how much you'll save by making extra payments?
Post Sun Nov 25, 2007 5:38 pm
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Apollo
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Re: Managing money  Reply with quote  

I agree with the other posters. It is a very bad idea. It is a risk that i really not worth taking, in my opinion. I would never advice anyone to try to play the 0% promotion game.

There are other options which you may want to consider in order to pay off your loans and CC loan. I think you should try to pay your CC first.

It is not smart to play it safe but it is safe to play it smart.
Post Sun Nov 25, 2007 6:19 pm
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s.jenkins
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yeah, i agree with everyone. knock out the debt first.
Post Mon Mar 03, 2008 6:48 am
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