Paying off Student Loan on 0% Credit Card

fox82

Firstly I'll start with the question I would like to know the answer to:

If I pay off my student loan on a 0% purchases (for 12 month) Credit Card will that go on to my card as a purchase with the 1.5% fee the student loan company charge? It wont go on as a cash transaction and therefore not be at 0%?

Now I know paying off my student loan goes against popular advice so I'll detail some of my reasons.

I'm 26 and my student loan is currently at £2750 which will go down to about £2500 after June's pay day. I've just received a new 0% (until 29th May 2009) credit card with a credit limit that easily covers the remainder of my student loan. Other than 2 morgages this is the only loan I've ever had, I've never borrowed on credit cards and I've never been in my overdraft since it stopped being interest free when I left university. So my main motivation is to get rid of the pesky payments on my pay slip each month and finally have some more money to spend (and a little to save).

Over the next year my plan is to put the money aside each month that I would have paid into my student loan into a savings account and leave that money there earning interest. As I see it this means my 4.8% student loan will go to a 0% credit card charge (with a 1.5% fee) so I'll be better off that way plus I will also earn interest on the money in the savings account. Finally as the "repayment" amount will then be in my hands I can increase it to pay things off quicker. Finally as I have to fill in a tax return it would be really handy to pay this off this year to make next years tax return easier, by my calculations paying off the loan through my pay will mean it runs till April 2009 (new tax year) paying it off on the credit card means I will pay it off 2 months earlier.

Thanks for any help and advice.

soon2be_student_wife

hiya fox! firstly, i dont have much experience, just 5 and a bit months working for a particular bank and applying for student finance now which has its own complications for me!

but even though im fortunate enough to perhaps scrape by at the mo without getting a loan *fingers crossed!* i would pay it off even tho martins article says not to, just my ethics there. so fab, if the loans company do accept it this could be an option.

however, as a former bank worker, i have to ask some questions!
is it definitely going to be just £2500 left with all the extra interest they can load on top of them?
would there be any settlement charges for paying it early? (shouldnt be but who knows!)
have you got in touch with student loans to see if they would take the payment from a credit card? as on my last day i went through to our loans department for someone who wanted to pay off a personal loan with a credit card, the dept. promptly told me they only take money thats cleared funds eg debit cards or cash... cant remember what he said about cheques? cus if that was the case you're screwed as you could only pay it off by withdrawing cash from the card which is ridiculously high interest!!
if you can get it on there, are there any hidden fees eg 3% balance transfer fee and minimum spend on first 3 months cus that could snowball up? and did you say that you're planning on paying it off at the end? cus some banks even with interest free cards still request monthly payments so worth checking with them.

hope some of this ramble can help and maybe there's some people with much better experience than me, hopefully someone has done something similar. good luck anyway xx

Blacksheep1979

even though martins article says not to pay it off in this instance you'll be better off as 1.5% over 1 year is less than what you're getting charged at the moment on the loan. Factor in that you will possibly be able to transfer the debt again once the offer period runs out (for anywhere between 0-3% of total) and you're paying far less than you do to the slc.

Oldernotwiser

If you were ill and unable to work or if you lost your job you'd still have to repay a loan from a commercial lender, whereas you'd be able to defer with the SLC. Just a point to consider.

fox82

Thanks for the replies.

Soon2bestudent_wife: The SLC do say they will take the payment off a credit card (from there website). The card is a HSBC one (don't know if that helps) I got it before they reduced it from 12 months to 3 months on purchases. The amount I've been quoted as £2500 after telling the SLC all my payments this tax year (except tomorrows - don't think they can factor in future payments). As far as I know there is no charge for paying it off early but I will check that before paying it off. I'm not sure about other hidden fees on the credit card, that is what I'm most concerned by. I don't want it to go on the card as a cash transaction which wouldn't be eligible for 0% on purchases. If it goes on as a 0% purchase it should be fine. I've factored in the monthly repayment. That will just mean more room for Stoozing.

Oldernotwise: Yeah illness/losing my job is a risk. I've got enough in an ISA to pay it off if this did happen (as well as both medical insurance and redundency insurance - if it really came to it). My actual pay back plan isn't as simple as just using the student loan contribution my employer would take...I'm actually planning on diverting all of this years ISA money so far (it isn't in an actual ISA account yet as I'm deciding which to open) and all of my monthly ISA savings into paying it off as well. So this will mean I actually have the money to cover the debt on the card by the end of September. I'd then redirect the extra Student loan contributions into my ISA savings for the remainder of the tax year to ensure I fill my ISA allowance. So making my pay off date September but I wont consider it paid off until I could actually spend all the extra money which will be end of March.

Idiophreak

I'd be a little bit cautious of doing this...SLC don't calculate your "amount owed" at any point apart from April (as the money is held by the IR, not SLC) - so it's quite probably you'd make the lump sum payment and they'd continue to take the payments from your salary anyway...Only next year when you get your statement will you be able to reclaim the amount you've overpaid...

That's my understanding of how it works...but am happy to be told otherwise if anyone knows something I don't?

fox82

I spoke to them and they said it takes about 2 weeks to send a stop notice to my employer. So as long as I don't pay less than 2 weeks before pay day then it should be ok. As such I'm thinking of doing it just after this pay day.

fox82

An update on this. I phoned HSBC to ask how the charge would go on my card. They said if I go to a cash machine, withdraw the money and hand it over to the SLC then it would (obviously) be a cash transaction and would inccur the cash interest rate.

However if I phone up the SLC give them my card number, expiry date, etc. Then it will go on my card as a purchase and therefore be part of the 0% offer.

Now there is only the "what if you lose your job risk". I'll let you know the results if I decide to go ahead with it.

Ytaya

fox82 wrote: »

Finally as the "repayment" amount will then be in my hands I can increase it to pay things off quicker.

You can over-pay your student loan, without penalty, by making payments direct to SLC over and above your salary deductions, if that makes any difference. So you could easily do a monthly over-payment equivalent to your ISA contribution.

sarah_elton

fox82 wrote: »

I spoke to them and they said it takes about 2 weeks to send a stop notice to my employer. So as long as I don't pay less than 2 weeks before pay day then it should be ok. As such I'm thinking of doing it just after this pay day.

See my thread on getting payments stopped.

There's no guarantee at all the stop notice will go through in time. Your company will also have a payroll cut-off date (at least a few days before payday) after which changes can't be made.

Make sure you can afford to make a repayment or two after you've paid it off. You can subsequently reclaim it, but check it works cash-flow wise as the system for getting repayments stopped is less than efficient.

fox82

Well yesterday I took the plunge, phoned the SLC up and paid off the loan on the 0% credit card. I'm now waiting for it to appear on my statement and for all the SLC paperwork to come through. It was a bit of an anti-climax really (mainly cause I still have the debt ) as they say they have to wait to receive the payments that I had to tell them I'd paid (e.g. from pay day a few days ago). Guess it'll be better once I get the letters and it is all confirmed and even better when the credit card is paid off.