How I Paid Off My Student Loan With 0% Interest
In today’s world, practically every other person we see walking down the street has a student loan. With the increase in education cost over the past decade, there is little maneuvering around taking out student loans unless one opts out of higher education. If your like most people, then you know it is extremely easily to obtain a student loan and very difficult to pay it off. While there are many options to delay paying students loans and even opportunities for forgiveness, those options are not alway in our best financial interest. I’ll use my own experience as an example.
At the age of 18, I decided to attend college resulting in having to take out a $2500 student loan. Although $2500 is not a lot of money and I should have been able to pay it off in a short amount of time, that was not the case. At 18 years old, paying off a student loan that did not need to be paid until 6 months after I graduated was the least of my concerns. So unpaid, it went and interest, it accrued.
By the time I graduated, the $2500 had increased to $3800. Still not a lot right? Well, to a fresh graduate who could not find a job to pay her own bills, $3800 was still the least of my concerns. To say the least, deferment was my best friend at that point and time I utilized this option until I felt comfortable enough to tackle my first real debt.
About a year after graduation, my loan had increased to $4000 and I was finally ready to begin making payments. $33 was all I was told I needed to pay. Before, my financial savviness, I thought I was winning. ONLY $33, I could do that with my eyes closed. What I did not realize is that most of my payment was going towards newly accrued interest and not the actual balance. I eventually increased my payments to $54 when I began see a small drop in the principle. After 5 years my loan went from $4000 to $3200. The decrease was moving at a snails pace and I was ready to be done.
At this point, I knew I needed to end the interest payments and pay this loan off as soon as possible. I refused to pay this loan for another 5 years while paying extra on top of the principle.
Here’s What I did!
1. Applied for 0% interest credit card
2. I was approved for $7000. This was more than enough.
3. Once receiving the card, I called Navient to pay the balance. I was told I could not pay the balance with a credit card.
4. I called the credit card company and informed them that I would like to transfer my student loan debt on to my new credit card. “Sure, no problem” was the response I received.
5. I was asked for the account number and the balance amount of the debt.
6. Within a few days, I received a letter stating my loan was paid in full. I was no longer accumulating interest on my student loan. There was a 3% fee applied for the transfer, totaling in $96. I received $32 in cash back and will receive another $32 at the end of the year.
7. My next step was to pay off the balance aggressively. Prior to deciding to transfer the debt. I created of budget to ensure I was be able to pay the card off quickly. I stopped contributing to savings and placed $500 toward the debt every two weeks.
It took a total of 3 months to pay off my student loans after the transfer.
While $4000 may not be a lot compared to the average student loan debt of $35,000. This article highlights a few areas of concerns in regards to paying off student loans
- The difficulty to pay off ANY amount, due to lenient repayment terms.
- Small amounts quickly increasing to large amounts over time.
- Paying enormous amounts of interest payments prior to paying off the principle.
Before Deciding to Transfer Debt
- Be sure you are able to pay off the debt in its entirety prior to the 0% percent promotion ending. (My terms was 12 months)
- Establish a healthy emergency fund, prior to making the decision
- Create a budget to establish a comfortable monthly payment amount.