Chipping Away - Busting Debt in Boston

A personal finance weblog about my own journey to eliminating my debts and building net worth. Hopefully this will serve as a place for me to share and discuss my strategies and ideas, as well as keeping me on track and focused.

8/02/2006

Consolidating My Debts - Thanks American Express!

Whew, what a crazy couple fo days since I've returned from vacation! It's definately good to be back into the swing of regular life, but I certainly miss not having to worry about anything (especially money! yuck) for awhile while lounging in the Southern California sun. ;-)

In any case, I had taken an extra day off on Monday to sleep in and reduce the east-to-west-coast jetlag effect on the rest of my first week back at work (and, well, why not take just one mroe day off?), and decided that a good use of the time off was to continue my quest to consolidate my higher-interest debts into something at a significantly lower rate. As a bit of background, because I know I have only mentioned it in passing, I received an offer in the mail a few weeks ago from American Express for a Blue Cash card with an awesoem balance transfer offer: 2.99% for the life of the balance! I'd have to be braindead not to try and do a ton of consolidation onto that card, right?

So looking at the Debt Roundup post I made soem time back, I saw that of my four sources of debt, the one that needed to be dealt with immediately was my Citibank balance which was carrying an insane rate of 15.99 percent! This was my priority balance, so when I applied for the card online I included that balance's transfer information right up front. Long story short, I was approved for the card and the transfer, but my overall credit limit was only a few hundred dollars higher than the transfer. Having the card so close to maxed out didn't give me any room to attempt to move any other balances to my great new rate, though, so on my day off I spent some time on the phone with American Express's customer service folks.

On top of having very friendly and reachable customer service, I'm VERY happy to say that I was quickly awarded a large credit line increase and two more balance transfers that will cover my remaining car loan balance (13.25%) and the smaller of my two student loans (5.00%). My credit limit jumped to $15k and will have a grand total of approximately $13.5k moved over to it by the end of the month. Not only does this DRASTICALLY reduce the interest dollars I'll be charged every month, but it also means that I'll only have two debt balances to send payments to. While this second point doesn't necessarily make things better for me financially, it's a lot easier and has a nice mental effect since I'll be sending a much larger payment to my remaining student loan which carries a 7.25% inetrest rate.

What's the moral of this long winded story? By jumping all over a very nice balance transfer offer that I received in my "junk mail" and aggressively persuing a higher line of credit, I was able to save hundreds or thousands in interest over the payoff period of my debts. Next stop: Finding a way to get a better rate on my student loan while I'm atacking its paydown in earnest.

5 Comments:

  • At 8/03/2006 8:38 PM, Blogger Daniel said…

    This is huge man! This will save you a ton, and also help on your monthly cash flow.

    You have no reason to pay more than the minimum on the new AMEX while you get the rest of your house in order.

    Also, while you may possibly be in a tax deduction situation on the student loans, you may want to consider transferring some of your student loans to your low interest card. There are many potential pitfalls related to this so be careful. I can list these out if you like.

    Congrats!

     
  • At 8/04/2006 10:10 AM, Blogger ChippingAway said…

    I thought about the tax deduction ramifications on the loan that i am moving over to this new card, actually. But for better or worse (definately for better ;-) ) i think this year I'll make enough that I won't even be able to take a student loan interest deduction. This, combined with the fact that this loan only had 147 dollars of interest last year (it was a 5k loan, total, at 5% fixed), makes me feel like it's just simpler and betterf ro me in the long run to just lump it in with the credit card and car. This way the 40 dollar minimum payment can be added to the aggressive paydown of my other and much larger student loan that has a remaning balance of $15.6k.

    Essentially once I get the car and loan transferred to this new card, I'll again only have two points of debt: my new amex @ 2.99% ($13.4k) and my large student loan @ 6.89% ($15.6k). The plan is to obviously make minimum on the amex and throw enough at the large student loan to have it cleared out within a year (give or take a few months). I think this is reasonable, and will give me a very good shot at being debt free within two to two and a half years.

    I thought briefly about attempting to add another 5 or 6 thousand to the card's limit to try and shift some of the larger student loan balance over as well, but thoguht that getting it up to a 15k limit may have been pushing it as it is. I am curious about some of the pitfalls you have in mind, though.

     
  • At 8/05/2006 12:35 AM, Blogger Daniel said…

    What you have said makes perfect sense! Keep at it!

    I had student loans about 5 years ago that were locked in at 7.5%. I couldn't consolidate them, so I transferred them to a credit card. At the time I transferred them, I was at the tail end of being able to obtain the deduction of the interest so it made sense to transfer them over to a the lower rate card. But here are some of the pitfalls:

    1) When you apply for credit such as a car or a mortgage, usually student loans aren't taken as seriously, however, a creditor has no way of knowing that I have student loans because it just looks like credit card debt, so I look like a guy with a $15,000 credit card debt not a $15,000 student loan debt.

    2) Obviously, you lose the tax deduction on the interest if you are within the income limits.

    3) If I ever miss a payment on accident, my debt will default to a super high rate, and then I would have to shop around for another place to transfer it. It could shoot as high as 23% just by missing one payment. This includes any card I have with that bank. So you have to be careful. They won't make too many exceptions here.

    4) Don't ever ever ever use the card you transferred the balance to, to purchase anything. Payments are applied to lower rate balances first.

    5)Certain credit cards have recently raised their minimum payment requirements, so your "minimum" payment on a student loan could increase quite a bit by transferring to a credit card.

    6)Student loan companies are always willing to work with you to defer payments and such. Usually credit cards are not.

    7)The federal government will no longer be involved once you transfer to a credit card, so while it doesn't happen much, the credit card company could change their mind and raise your rate. They could decide you are more of a credit risk and change the rate, or your bank could merge with another bank and new rules would apply. Haven't seen too much of this though.

    8) Certain professions (nursing, army) will pay student loans as part of their compensation package. If you have transferred them to credit cards, it won't matter.

     
  • At 3/17/2008 11:15 AM, Anonymous Consolidate debt said…

    I really admire your determination in paying off your debt. An example to follow for sure!

    Keep it up!

     
  • At 3/06/2013 5:49 AM, Blogger tata sifra said…

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