In November 2011, CNN reported that students who graduated from college last year did so with a record level of student debt – $ 25, 250 per graduate.
What is more worrying is that this number is an average, which means that while some student’s debt has remained below this amount, many carry the debt well over $ 25,000 – some up to $ 100,000 or even loans to the students. What’s worse is that many former students with student loan debt have never even received a diploma.
There is no easy way to pay student loans, despite the ease with which this debt can mature. However, there is a strategy to attack school loans that you may not have taken into consideration and that can make things a little easier: credit card transfers with low interest.
The balance transfer introductory APR involves risks, but if you keep good records, pay your bills on time and get a good credit score, you might be able to repay student loans much faster by using credit cards. However, there are a number of variables to consider before determining if this is the right method for you.
If you have a solid credit score, you could be a good candidate for low-interest balance transfers. To keep your credit score as high as possible, access your free credit report regularly and check it for inaccuracies. Also, establish credit lines as soon as possible, but be careful that you only import minimum amounts each month and pay them in full in each billing cycle. The longer you have used credit responsibly, the better your score.
Practicing good tax habits over a long period of time is the best way to improve your credit score. Good financial habits include paying bills on time, without ever exceeding 50% of the credit limit and maintaining modest expenses.
The transfer of loans is not necessarily as simple as it seems. Even if a lower interest rate is what you are at the end, make sure you don’t give up valuable benefits by transferring certain loans to students.
Give priority to loans with higher interest rates
When choosing the loans to be transferred to a credit card, do not automatically select the loans with the highest balances. The strategy works best when targeting smaller loans subject to higher interest rates. By using this strategy, you can accelerate your earnings because most of your money will go towards the principles and less towards the interest.
Avoid the transfer of government loans
In general, you do not want to use balance transfers with low-interest credit cards for government-subsidized student loans. Instead, save the balance transfer strategy for loans from private banks.
Government loans are equipped with all kinds of integrated ways to suspend, settle, postpone or otherwise reduce payments. These are tricks to have available if necessary. Once you transfer a government loan to a low APR credit card, you lose these benefits. The ability to accelerate the payment of the loan by reducing the interest could be increased, but the risk also increases.
Whatever you do, don’t transfer more than you can pay within the low APR introductory period. It is in your best interest to start small.
You will probably not receive enough offers to facilitate the transfer of the entire credit balance of the student loan to credit cards with low interest rates at once – especially if you have just graduated. Instead, choose a smaller high-interest loan to target first. Then concentrate all your energy towards paying that loan before the introductory rate expires.
There are three reasons to use this method:
Remember, if you can responsibly use a balance transfer by paying on time, your credit score will increase and in the future you will have even more low-interest offers with higher credit limits.
A lower interest rate does not automatically mean that a balance transfer offer is “good”. It is also necessary to consider the impact of the balance transfer fees and the duration of the introductory APR. Remember, it is necessary to plan the payment of the entire balance of the loan transferred within the introductory period; otherwise the interest rate on your loan could skyrocket compared to what you were paying before the transfer.
Interest and term
How do you rate what is “low interest”? Clearly, the lower the better, right? This is true; however, it is also necessary to take into account the length of the term.
For example, a balance transfer offer of 2% of RAP for 12 months could be better than an April offer of 6 months, 0%. I recently saw an offer to block a balance transfer of 3% APR for five years. This could be a great deal for someone who is paying student loans with an interest rate of 8% or 9%.
Low interest can mean any rate lower than the current rate. However, I do not recommend this strategy unless you are lowering your rate by at least four points. Remember, if you can’t pay or transfer the entire balance at the end of the introductory period, this strategy won’t help you at all. It might be better to keep the loans exactly where they are.
Always remember to examine the fees. Almost all balance transfer offers are accompanied by a commission based on a percentage of the loan, which must be calculated in the cost of the loan.
Treat the tax as if it were interest for the first 12 months of the balance transfer. For example, a 12-month APR transfer with a 3% commission means that, in essence, you will pay a 3% APR, a good deal in most cases. However, this is why I do not recommend 6-month balance transfers, because commissions on a 6-month transfer are usually the same as commissions on a 12-month balance transfer. A 3% commission on a 6 month balance transfer means that you are actually paying a 6% annual rate and probably not worth it.
Balance transfers in low APR effectively carry risks. It is extremely important to remember that while there are balance transfer offers that allow you to lock in a low interest rate for the duration of the loan, in most cases these are temporary rates. These are the rates that expire after a short period of time.
Make sure you make plans to pay off the loan balance (or transfer it to another card) before the introductory APR expires. If you leave a balance on the card at the end of the pricing period, it will trigger a much higher interest rate that could make you borrow deeper and make your situation worse.
Low rate balance transfer offers come and go, so there is no guarantee that a new offer will be available to you at the end of the introductory period. Because of these risks, the strategy of using low interest balance transfer offers the possibility to repay school loans should be undertaken with caution and caution.
I personally used this strategy to manage large debts, and I know others who paid large credit balances using the introductory balance transfer offers. However it is not always an easy plan to execute. The use of introductory balance transfers to reduce school loans requires active participation on the part of the user, good storage capacity and timely payments. If you have high interest school loans and the ability to manage your money well, balance transfers could be an extra weapon in your debt reduction arsenal.
Did you use low-interest credit card balance transfers to manage student loan debt or to pay other large credit balances?
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