PAID IN FULL – Private Student Loan 1 (PSL1) / Was the balance transfer worth it?

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
-$6,100.00April 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.

Private Student Loan 1 and Revised, Revised Goals

So in a recent post, I shared that I used the balance transfer method to transfer my Private Student Loan 1 balance to two of my credit cards, using a 0% interest for 12 months, balance transfer offer. I initiated that process this past Saturday and as of this morning, Wednesday, August 7th, I have transferred the funds in full to my student loan lender (I intentionally did not use the words “paid off” here as I didn’t payoff anything, I just reorganized my debt).

Private Loan 1 Balance (Paid to Student Loan Lender): -$9,817,69
Discover Card Balance: -$3,450.50
Citi Card Balance: -$6,695.00
Private Loan 1 Balance (After transfer to credit cards): -$10,145.50

If you read my post, you know that $295.50 of the balance increase resulted from the balance transfer fees. However, if you subtract $295.50 from the new balance, you would notice that there is still a small difference of $32.31. That difference was an overestimation on my part. Unfortunately, unlike a lot of lenders which allow you to get a payoff estimate, my student loan lender did not and I didn’t do the math. Ugh.

In any instance, I will make very little progress on this loan this month because I used the leftover from my August 1st salary (which wasn’t a full salary because I didn’t start at the beginning of the month) to finish cash flowing my moving/settling expenses (seriously, moving from literally one side of the country to another is not cheap). While it is disappointing that I won’t make much more progress on my student loans this month than the minimums, I knew this was a possibility and I’m grateful not to have had to go into debt or touched my emergency fund (look C, I can find a bright-side too!). So onto the revised, revised goals…

August 2019 Goal – My goal this month is to cover the cost of the balance transfer fees and, add the difference mentioned above, so that my balance on September 1st is the same or lower than the balance on August 1st. On September 1st, when I get my first full paycheck from my new job, I should be able to make the first really significant dent in this loan. My goal in August is also to find my first/initial side hustle. 

When checking my accounts this morning (I told you, I do this almost obsessively), I noticed that despite being a 0% for 12 months, 3% balance transfer fee offer, Citi said my offer end on 6/1/2020 (see below). While I have zero plans to have this debt lingering around that long, it did make me think more about how I should pay these two debts. While I initially thought I might pay the minimum on Citi and chuck everything at Discover, the smaller balance of the two, now I am not so sure. While Discover does have the smaller balance, their balance transfer doesn’t expire until 8/16/2020, two months later (again, even though I have every intention of having this paid off well before then, a buffer is always good).



Revised 2019 Private Student Loan 1 Goal – Payoff my Citi balance ($6,695.00). While it would be much easier to list the smaller debt as the goal, that wouldn’t really push me. I want something that is going to push me to hustle and sacrifice. It’s literally going to take everything I have and then some but I really want this for myself.

Okay. This should be the last post this week, I promise.

Debt Psychology: The Balance Transfer Strategy and Private Student Loan 1

Interest sucks. And it sucks because its effects are both material and psychological. Each month it deftly diminishes the significance of your payments, siphoning hard earned dollars meant for the principal. And while you understand logically that this is how it works, that this was the bargain, it still sucks and you can’t help be anything but sad.

As I look down the long road of debt repayment, I have spent countless hours scouring the internet for debt repayment hacks to help me pay off my massive debt more efficiently. The most ubiquitous suggestion is to refinance. Unfortunately, despite having very good credit (FICO 791) I didn’t qualify for a refinance because my debt to income ratio (DTI) is too high. That sucked. It really sucked because I was not attempting to refinance the entire balance but just the non-university private loans (~$40,000.00); and, ultimately, the minimum payment for the refinanced loan would have been less than I currently pay on the individual loans. So I kept reading and kept looking for things I could do. Another strategy I came across was called the “self-refi” or “balance transfer strategy.”

While there are countless other blogs that will explain this method in greater (and better) detail, essentially, you accept a balance transfer offer that allows for a direct deposit into your checking account and then use that amount to pay off your student loan. (Note: Because student loans are not bankruptcy eligible but credit cards are, some credit card issuers will not allow you to use balance transfer funds to pay off student loans. Fortunately, some do).

There are two rationales for me using the balance transfer strategy: 1) Saving on interest and 2) the psychological benefit of seeing every dollar I save or hustle for go towards a principal payment reduction. I will return to these rationales in a bit, but first, the nitty gritty of my balance transfer.

First, I accepted a balance transfer offer from two of my creditors (Discover and Citi). While it would have been preferable to transfer the balance to one creditor, at present, I do not have a credit line large enough to accomplish this. So two creditors it is. Financially, there is no real impact to using two creditors, it’s just less convenient. Both creditors offered me a pretty standard balance transfer 0% for 12 months and a 3% transfer fee (this really is the pretty standard offer, although I have seen 15 months offered at account opening and USAA apparently occasionally floats a 0% balance transfer fee to some of their members).



I forgot to grab a screenshot for Citi but it looked quite similar…


Total Transfer Amount: $6500.00
Total Transfer Fee: $195.00
Remaining Credit: $605.00

So the total amount for the balance transfer requested was $9,850.00. I will use this to payoff Private Student Loan 1, which currently has a balance of -$9,812.49 at 9.74%; I was worried about how long I would have to wait until I could pay it off, but the August statement posted this morning so as soon as I receive the funds from Citi I will pay it off. This process has happened pretty quickly. I pulled the trigger and made the balance transfer request on Saturday and as of today, Monday morning, Discover has already deposited the money into my checking account.

Now, before I return to the rationales, let me address some of the concerns any reasonable person reading this post might have…

Objection 1: An accelerated, adjusted repayment schedule might result in no savings using the balance transfer strategy.

This is true. Assuming I paid off Private Loan 1 in December, which was my midyear revised goal, I would actually lose money on interest. According to the Student Loan Amortization Calculator I used, if I paid off the loan in December, I would lose $56.00 in interest, which is the difference between the interest I would have owed the student loan lender ($239.00) and the balance transfer fee I paid Citi and Discover ($295.50).

Date Interest Principal Balance
Aug, 2019 $79 $1,920 $7,838
Sep, 2019 $64 $1,936 $5,902
Oct, 2019 $48 $1,951 $3,951
Nov, 2019 $32 $1,967 $1,983
Dec, 2019 $16 $1,983 $0
2019 $239 $9,758 $0

But I am a very reasonable woman, and despite my intent to hustle my tush off over the next few months, I figured it was probably unlikely that I would get this done by December. So I calculated what the interest would be if I paid the loan off in March 2020. The difference this time, of $64.50, is interest saved doing the balance transfer over continuing to pay the student loan lender.

Date Interest Principal Balance
Aug, 2019 $79 $1,186 $8,572
Sep, 2019 $70 $1,195 $7,377
Oct, 2019 $60 $1,205 $6,172
Nov, 2019 $50 $1,215 $4,958
Dec, 2019 $40 $1,224 $3,733
2019 $299 $6,025 $3,733
Jan, 2020 $30 $1,234 $2,499
Feb, 2020 $20 $1,244 $1,255
Mar, 2020 $10 $1,255 $0
2020 $61 $3,733 $0

And, just as a thought exercise, if I were to extend repayment over the full period of the balance transfer, I would save $226.50 in interest.

Date Interest Principal Balance
Aug, 2019 $79 $777 $8,980
Sep, 2019 $73 $784 $8,197
Oct, 2019 $67 $790 $7,406
Nov, 2019 $60 $797 $6,610
Dec, 2019 $54 $803 $5,807
2019 $332 $3,951 $5,807
Jan, 2020 $47 $810 $4,997
Feb, 2020 $41 $816 $4,181
Mar, 2020 $34 $823 $3,358
Apr, 2020 $27 $829 $2,529
May, 2020 $21 $836 $1,693
Jun, 2020 $14 $843 $850
Jul, 2020 $7 $850 $0
2020 $190 $5,807 $0

It should also be noted that the interest savings assume that I pay the same amount each month. If I paid less (or more) the interest would also fluctuate accordingly. The balance transfer fee is not subject to such fluctuations so whether I pay it slowly over the full term or more quickly, the amount of the transfer fee stays the same.

Objection 2: Student Loan interest is tax deductible whereas credit card interest is not.

Also true. However, the amount I pay in student loan interest always exceeds the tax credit. This might be of greater concern in the future as my student loan balances decrease, however, as my DTI improves, I would like to apply for a traditional refinance.

Objection 3: If you don’t pay the amount off during the balance transfer period, the balance will be subject to a much higher rate of interest than the original student loan.

Also true. But don’t worry. I got this. I kid, I kid. While I do like the idea of a hard deadline and a bit of pressure to pay this off, I would like to payoff far more than just this loan by next year at this time. Additionally, the amount that I would need to pay each month to have this loan paid off by the end of the balance transfer period is rather reasonable ($857.00) and at the very least, I expect to be able to pay that each month, especially now that I am a bit more settled and can begin to hustle.

Objection 4: FICO doesn’t weight installment debt and credit card debt the same. Your FICO score is going to take a hit.

Absolutely true. The transition of this debt from installment debt to credit card debt is pretty big. My credit utilization is going to go way, way up (it’s currently 0-1% depending on when the statement cuts) and I expect my score to drop, at least temporarily, by between 50 and 100 points (the swing could be that large because I am still relatively young with a relatively shorter credit history). I would never have embarked on this strategy if I knew that I would need credit in the near future. As I do not, and the hit will be temporary, this was not a huge consideration for me.

Now, those initial objections at lease cursorily addressed, let us return to my rationales for the balance transfer…

1) Saving on interest. – This was addressed extensively above. As long as I pay off the amount after December 2019, I will likely save a tiny bit on interest.

2) The psychological benefit of seeing every dollar I save or hustle for go towards a principal payment reduction. – As you might have expected, the largest benefit to this strategy for me is psychological. I can’t speak about the experience of anyone else, but when I am targeting a debt, as I am targeting Private Student Loan 1, I log into the dashboard and look at the debt frequently. It is disheartening to see the balance gain interest every day and to not actually see the fruit of my sacrifice. (Skip buying a new pair of shoes so that you can make an extra $30 student loan payment, watch the loan gain that amount in little over a week in interest). With the balance transfer, every dollar I save or earn will chip away at the amount I owe. While I know that it would be better to be motivated by the interest that accrues each day, I’m not there yet. And as my journey will be a long one, anything I can do to keep myself happy and focused is worth its weight in student loan debt.