When I logged in this morning to pay off the remainder of Private Student Loan 1 (PSL1), I didn’t really “feel” anything after I paid off the remainder of the balance transfer. So then I logged into the original creditor’s website and saw the above landing page. A year ago when I saw this when I transferred the balances from my lender to two separate credit cards I felt excited to have a plan but the image above didn’t really resonate with me. My loan wasn’t actually “paid in full.” Today, it feels a bit different. This was the last student loan I took out (will ever take out!) and it felt significant to pay it off. Not like I erased the years and made better decisions significant, but significant to the extent that it represents me recovering from my poor financial choices and moving forward.
Private Student Loan 1 Payment Recap
This loan was targeted for repayment first because while it had an average balance with respect to my other student loans, it had a ridiculous interest rate for a student loan. From January to March of 2019, it peaked at 10.115%! To highlight how ridiculous this student loan rate was, consider that the credit card to which I transferred most of the balance, my Discover It Card, only has a interest rate of 11.99%. Yes, my student loan interest rate was within two percentage points of my credit card interest rate.
As this was significantly higher than any of my other student loans and combined with the emotional pull of it being the last (and in my eyes the most frivolous) student loan I took out, it was an easy choice.
Minimum Payment: $110.46
-$10,231.32 – Balance on July 4th when I started this blog AND began targeting this loan
-$9,812.49 – August 1, 2019 balance
–$10,145.50 – Balance after balance transfer to credit cards; new amount includes balance transfer fees of $295.50 (and an over-payment of $32.21)
-$9,919.10 – September 1, 2019 balance
-$9,550.00 – October 1, 2019 balance
-$9,225.00 – November 1, 2019 balance
-$8,800.00 – December 1, 2019 balance
-$8,600.00 – January 1, 2020 balance
-$8,400.00 – February 1, 2020 balance
-$7,200.00 – March 1, 2020 balance
-$6,100.00 – April 1, 2020 balance
-$3,700.00 – May 1, 2020 balance
-$2,800.00 – June 1, 2020 balance
-$2,350.00 – July 1, 2020 balance
-$1,900.00 – August 1, 2020 balance
$0.00 – August 3, 2020 balance; will be reflected in student loan balance update on September 1st
Total interest saved: $522.00
Balance transfer fee: $295.50
Actual amount saved (interest saved – balance transfer fee): $226.50
Was the balance transfer worth it?
In the grand scheme of things $226.50 doesn’t seem like a lot of money. However, that is also $226.50 of my own money that I didn’t have to give someone else. And if I was asked to spend $226.50 on something at this very moment, I could not think of what I would spend it on… So financially, was it worth it? The answer has to be “yes.”
However, unless I paid of my loan really quickly, then that was always going to be the case. There was more than likely going to be some savings from the balance transfer. In an earlier post, I reviewed the benefits both financially and psychological to the balance transfer. In that post, the take-a-way is that most of the benefits of the balance transfer would appear to be psychological, and in reality, I found that very much to be the case. If you look at my repayment log above, I didn’t really get serious about paying off this balance and pushing myself hard to make big payments until February/March of this year. Why? Because I realized the balance transfer would be ending soon and that I needed to make big payments if I had any hope of paying it off (AND being a balance transfer “failure” and avoiding the embarrassment of having to write a post about it). This forced me to make sacrifices and adhere more strictly to my budget to make those big payments. While this was good for my student loan balances, it also had the additional psychological benefit of making $1,000.00/month additional debt payments seem “doable,” whereas before they were just something I could do in theory. Now, every dollar spent that takes me further away from being able to make a $1,000.00 payment on the first of the following month feels real and like I failed a bit. So when I make that $700.00 additional payment, I no longer think about getting a reward for my sacrifice, instead, I now think, “I could have paid more. I have previously paid more.” That shift in mindset is invaluable. So, was it worth it from a psychological perspective? An emphatic “yes.”
Would I do it again?
I don’t know. While that might seem a bit surprising given my answers above, it really shouldn’t be. The current financial environment is much more fraught that it was a year ago. I didn’t feel like I had the flexibility to decelerate my student loan payments toward this debt because of the balance transfer which means I didn’t start to increase my savings in response to the pandemic. While that is now my plan, had I not had the balance transfer, I think I would have done this much, much sooner. While the current pandemic is unprecedented, it highlights how drastically your financial situation can change very quickly and highlights the principle downside to the balance transfer method: the loss of financial flexibility.