balance transfer pay education loan

Cheat Sheet : Use 0% APR Credit Card Balance Transfer to Pay Education Loan in India

Raghuram Sukumar Personal Finance 22 Comments

Education loan Interest Rate in India is around 12% or even higher.  Is it a good idea to pay off education loan from your home country ( say India) using 0% Balance Transfer offer from U.S. Credit Cards?

  • Your Goal : Save on your interest rate of your education loan
  • Analysis : Pros and cons of borrowing money to pay off a loan

Below are my thoughts on student loan interest rates (borrowed in India), and how you can save money by using balance transfer offers provided by many popular credit card companies based in U.S.A.

Education Loan and Credit Card Balance Transfer : Background

Interest rates on my educational loan (borrowed back in India) have always been greater than 12% per year, steadily increasing to 14.5%.

When the money was borrowed originally, interest was at ~48 Rs per dollar. After I began to replay my loan, the Indian Rupees (INR) depreciated to ~58 Rs per dollar! (If it remained at that level, I’d have to repay more dollars).

This factor, in addition to my urge to be debt free as quickly as possible, made me look at the balance transfer offers I often received from two credit cards companies here in U.S.A.

I have used many balance transfer offers over a period of 4 years with 0% APR and a 3% transaction fee (now some offers come with up to a 5% transaction fee).

The 0% APR periods have always ranged from 15 to 21 months.

So the actual interest per year (including the transaction fee) for the balance transfer offer for the credit card was much lower than 3%, and in comparison. That’s much better than the 14% I was paying back in India.

Using up the balance transfer offer was also a guaranteed way of getting the current forex prices. Fortunately for me, INR was depreciating (more rupees per dollar) during the time I started using the balance transfer offers.

E.g., If you borrow money using balance transfer and immediately transfer it (within one week/month) to India at INR of 63 Rs per dollar you can save ~5% in forex rates itself (if exchange rate is INR 59.85 per dollar)!

Instead of sending X amount every month to pay my loan, I’d borrow 10 times the amount through the balance transfer, send it to India, and start repaying the my credit card balance offer a few months in advance.

Balance transfers are awesome, if you do your homework. I Repeat : Balance transfers are awesome, if you do your homework. Be aware of potential risks before you do this. .

After testing out my technique and being successful, I would like to share how you can save money paying back your student loans in India.

Step 1:   How to do Balance Transfer

If you are using a balance transfer offer on your current credit card, make sure to pay off all of your current balances.

Wait for a statement with zero balance and then use the balance transfer offer (max it out or use part of it). You have to do this if you want to be safe from shocking interest charges.

Here’s why:

  • Credit Card Limit : $10,000
  • Current Balance : $1,000
  • You use a balance transfer : $8,000
  • Transaction Fee  3% : $240 ( 3% of $8,000)
  • Total New Balance : $9,240

Here’s the catch :

Your promotional 0% APR applies only to that $8,240

For that existing $1,000 balance, your regular APR applies which can be anywhere between 12% to greater 30% (depending on your card agreement).

Here’s the tricky part :

  • Any monthly payment you make goes towards the amount that has a lower APR.

So, until you pay off your $8,240 from the balance transfer, you are going to get charged the regular APR every month on that $1,000 (this adds up very fast!), and that charge adds to the higher APR balance every month.

  • The same holds true if you purchase anything after utilizing balance transfer (unless it’s a new card and has a 0% APR on purchases for the first few months).

As a best practice, I did the following :

  • Pay off existing balance.
  • Wait for a credit card statement to show balance of Zero.
  • Do the Balance Transfer
  • Lock the card in a safe place until I am done paying off the balance on it.

Step  2 : Pay Monthly Credit Card Balance

Pay your balance off before the 0% APR period your balance transfer ends. Because, as you may guess, the full APR rate will apply to the balance after this period.

An easy way to remember this is to set a Google Calendar reminder that will email you a reminder before the last date of your offer period.

I’d usually start saving up for the big pay off a few months before the last offer date.

Step 3: No Late Payments on Credit Cards

If you are late on even one payment, which means paying the minimum amount after the due date for that statement period, the credit card company will most likely revoke your 0% APR and make it regular APR.

DON’T EVER BE LATE on any of your payments, especially the ones where you have used the offer.

Step 4: Credit Score and History

Your credit history will certainly take a minor hit, but it’s not too big to be worried about (I have previously tracked it; dropped from 730 to 720/710).

If my understanding of credit scores is correct, it’ll end up boosting your scores and credit history once you have paid the balance off without a single late payment.

Other Balance Transfer Tips

  • If you are planning to apply for any type of a loan (auto/education/home), it is suggested to not have a large rollover balance (That’s the remaining balance on your card after you have paid the minimum due on or before the due date).
  • If you struggle at being disciplined when paying off balances or credit cards, don’t use the balance transfer offers. You’ll end up digging a bigger hole for yourself.
  • The USA is a country with very cheap credit, use it. But don’t be careless while using it. It’ll come back to bite you hard, really hard.
  • ***Low interest credit is awesome. Use it responsibly***
  • Disclosure: I have been an engineer all my life (I mean, after 12th grade :)) and not a financial advisor. This article is written with the goal of sharing my experience, and is not vetted by a finance person for its accuracy or effectiveness. Anyone reading this should not take this as a financial advice. If you need one, please go to a Certified Financial Planner (who takes a flat fee).

Will You do Balance Transfer

Student loans can make life difficult. The ones borrowed in India are even more complicated.

If you are an international student in the USA and not from India, this article will still benefit you if your student loan interest rates are high and the forex rates for your currency are highly volatile.

I hope you can find this information helpful to your current monetary situation.

Written by Nitin ( iOS developer in Washing DC Area and HSB Fan).

Over to You

What do you think about using balance transfer to pay off your high interest education loan in India or your home country?

Let me know your thoughts about  balance transfer?

My room mates back in UTA used to do balance transfer to save on interest rates. You know all is well sometimes doesn’t end well.

It’s tough to recover from Credit History mess.

Have you heard about Murphy’s Law?

See this Interstellar Trailer (around 30 seconds )

You can plan everything to perfection, but things can go out of control and you may end up paying more more than what you have planned for, plus not to mention about Credit Score and history impacts.

Have you done anything like this with Balance Transfer? Let me know your comments and concerns in the comments below.

Comments

  1. I used this option 3 times over the past year to pay $15000. The first 2 times I had Transaction fee of 2% and then the last one was 3%. Talk to your credit card company they may reduce the transaction fee. No harm in trying saves you some money. Also when I paid fees in 2011 $1= Rs.43 and in Aug 2012 during my last Sem $1= Rs.55.5. Now Dec 2014 $1=Rs.60. I paid of $31,000 out of $48,000 debt in my first year of work by some aggressive saving methods(no car, living in NYC, shared rooms, cooked my own food) and now I am debt free in less than 2 years. Thanks to the volatile exchange rate too.

    1. Great to know that Naveen! Never thought of the possibility of reducing the transaction fee when I used these offers. Thanks for sharing that tip!

  2. Sounds like a good idea. However, how do someone use the $$ in the credit card to pay in INR? Could someone please elaborate the options available? Thanks.

    1. You get a check, deposit it into checking account. using Remit2India, Xoom or other money transfer services, you can transfer it to your account in India. I have mostly used Xoom. You can check which service suits your requirement

      1. Nitin, How can we transfer large amounts?, Don’t we have a limit of 2500$ per month? So do you transfer every month?

          1. I think Xoom can increase your limit once you provide them the requested documents. Their website has the link to do that.

      2. Nitin,

        Instead of getting a check can we directly use the credit card(with 0% promotional offer on balance transfer and purchases) to transfer the money to india using xoom, transfast, ria etc…? I am asking this question because not all credit cards give the check to deposit money in our checking acocunt.

        1. No.
          1) If you use a CC for any of these money transfer services, you will pay an additional fee on top of the amount transferred
          2) CC being charged by anyone other than the bank, usually will be considered as a purchase and not as a balance transfer.

          If your cc won’t give a check and will insist on paying off a credit card balance, then I don’t think the technique is helpful.

          1. So, if I still have to transfer the money through the CC which offers 0% on purchases, I will be charged with 3% + additional fee from Xoom. Is my understanding correct?

          2. correct.

            Processing a transaction using credit card, costs Xoom (or any merchant) anywhere between 3 to 5% of the amount. Xoom (or any other money transfer service) would transfer that burden to you.

  3. Great article! A few questions:
    1. How do you effect the cash transfer from your credit card to your bank account in your home country?
    2. Are there bank charges associated with the transfer?
    3. If yes, are there ways around paying such charges?
    Thanks again

    1. Balance Transfer – Credit Card will send you a check. You deposit the check into your bank account.

      Transfer money from your bank account as how you would normally do. I use Xoom for transferring money to India.

        1. Author

          Once your 0% APR is approved you can call them to get the check.

    2. As Raghu said,
      1) All transfers I have had, I received a check for the amount. I was free to deposit it in any checking account I had
      2) transaction fee is the charge you pay, and if there is any interest rate associated (usually for 2% or 3% APR, you get a longer duration to repay, but I have only used 0% APR ones).
      3) If you check Naveen’s comment, you can see that there is scope for asking for a lower transaction fee. I haven’t tried doing it, but I don’t see any harm in asking.

      1. Thanks! I still need more clarification. I have $10,000 and $7,000 CC lines with 0% APR. How can I convert such to balance transfers checks? Please I really need more guidance. Thanks again

  4. Hi Nitin,
    Thanks for this advice, very interesting to know how to use balance transfer to solve the student loan problems in India.
    Now Raghu:
    Im a blogger even while in India, now Im a student in the USA on OPT. I have an active adsense account here on US address while I have active ad income I have kept my balance on hold. Can I withdraw my ad income to my bank account would it cause any issues in my H1B processing?
    As your blog has google adsense I feel you are the best person to answer my query.
    Adsense legal:
    On CPT?
    On OPT?
    On H1B?

    Thanks
    Vimal (HSB fan)

    1. You are opening a can of immigration worms 🙂

      For questions like this, I just ask readers to talk to an attorney. And I highly recommend you talk to an attorney based situations you have mentioned.

      Attorney Referral – Refer to the interviews I have done here in the blog.

  5. I’d like to add to the post, based on a few more balance transfers in the past few years:

    1) Most Chase, Discover BT offers usually pay card balances and don’t send a check.
    2) BoA and Citi offers I used, send checks
    3) Some cards with 0% transfer fee (sounds very attractive), will give you a ridiculously low credit limit initially even if your score is near 800 (credit limit of $2400)

    In case you have an offer that doesn’t send a check, you can pay a credit card so that the account/statement balance goes negative (I paid my chase cards with discover BT), and you will have some liquid cash the following months because you make only the minimum payment for your credit card statements.

    Note: If you have a BT offer at 0% APR for 6 months from transfer date, at 3% transfer fee, you are effectively paying 6 % interest over a year. Also, once the promotional APR period is over, the interest amount is calculated on a daily basis. I have never paid any extra amount other than the transfer fee, because I pay the statement balance in full (when not using a balance transfer offer), or pay the min balance when using a BT offer.

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