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If there is one thing I take seriously, it’s student loans. Today I want to talk specifically for those that are going to take the plunge of balance transferring student loans (and other loans) onto credit cards. I primarily want to focus on budgeting and tracking around your balance transfers.
I’ve already talked about the recommended qualifications to do a balance transfer of sizable amounts from your loans in another topic. Assuming you meet them, it’s mega important to know when your 0% APR is going to end. I only take advantage of no fee + 0% APR balance transfer cards.
FINANCE LEVEL: ADVANCED
COMMITMENT LEVEL: MAJOR
Step 1: Keeping Track of All Credit Cards
While I do use Mint for tracking my spend, I don’t really trust them for bills. I keep my credit card bills tracked in Google Docs.
PROTIP: Set up and schedule all of your credit cards to be due on the same date (or at least a similar timeframe). This makes bill payment & tracking more consistent.
I created a Google Doc that you can fill out at your leisure. Simply open up the page -> Go to File -> Make A Copy.
There are two tabs I’ve created. In the screenshot above is the first tab that tracks all of my credit card balances. You’ll see the following columns:
- CC Type – This is the name of the credit card (BT = Balance transfer, I also highlighted in blue).
- Close Date & Due Date – I found it easier to just put the numbered dates vs. an actual date because it got annoying over time.
- Current Balance – All active amounts total in all credit cards.
- Statement Balance – The amount I owe for each credit card (Note: balance transfer CC’s will vary, you’ll see why).
- CC Bonus & Auto Bill Pay – Both are reminders to tell me which credit cards are for balance transfers and if auto-pay is on.
Budgeting Around Credit Cards
Outside of paying rent / HOA / mortgage, nearly all of my bills are paid via credit cards. This means that I only need to worry about housing & credit card due dates. Since all of these due dates are in the first week of each month, I only need to update my numbers once a month.
You see in my case, I have 3 different credit cards I’m using balance transfers on. You might only need 1 credit card. Personally, I recommend starting with 1 and wait a few months (3-6 months) before deciding if you want to add a second credit card to BT.
NOTE: This only works if you are bringing in more money than spending each month.
Step 2: Planning Out Balance Transfer Spend
If you check the second tab of the Google sheet you will see more details surrounding each balance transfer.
It’s extremely important to track your balance transfer information. Starting with interest rate terms, I track the following:
- Start Date – Activation date of my credit card
- End Date – the number of months I have of 0% APR from the start date
- Months remaining – I update this monthly after every month to keep track of how much I should be paying
- Starting Balance – The balance transfer amount.
- Remaining – This number is pulled from Tab 1 and updates automatically
- Average monthly payment – ‘remaining divided by months remaining’
- OG (original) MP – This is the ideal amount of money that should be paid monthly to avoid paying any APR.
Original Monthly Payment vs Average Monthly Payment
You can see that my first credit card was taken out almost a year ago. Since it was 15 months APR with $13,500 on the card, my original estimated monthly payment is $900.
However, you can see that my average monthly payment is slightly above that. This is because life happens. I use balance transfers to stop the bleeding of paying interest at the expense of my credit score. I’m bolding that because it’s a tradeoff I find worth it.
Back to the point at hand. Life does happen, I had to pay more in taxes in early 2018 than anticipated so I ended up paying the minimum on my balance transfer cards to keep my emergency fund buffer intact. Because of that, I am technically “behind” on payments.
As my contracting/work continued to bring in positive cash flow throughout the year, I can adjust my monthly payments based on the average monthly payment amount.
Remember, both original and average monthly payments are ideal if you have the money to float and want liquidity.
But what if you aren’t that liquid in cash, how would you tackle balance transfers?
Step 3: Budget Payments Around Reality
Recall that I recommend getting a 2nd balance transfers (if you need it) after 3-6 months of your first? There are a few reasons for this:
- You would already start paying down your first BT card to lower credit utilization.
- Your credit utilization won’t take a hit with one card if you have enough credit.
- By adding a 2nd or 3rd card, your credit score and utilization will take a hit, it’s better to spread it out.
- You can start focusing extra payments around the card with the earliest APR removal.
While step 2 focused on ideal payments assuming all things are constant. Step 3 is focused around adjusting payments to both pays off your balance transfers and maximize your 0% APR.
How To Set Up Payment Amounts for Balance Transfers
Look at the first tab. Once a month, after you receive all your statement balances from your non-balance transfer cards, update them in the “statement balance” fields.
- Once you do that, update the statement balance on your BT cards to $0.
- Review the amount you (and household, if applicable) will bring in for that month. So if you work at a job that takes home $4000 + you get $1000 each month side husting, then your monthly take home is $5,000.
- Assuming all of your non-BT cards are added up (in the screenshot it would be about $2,300). Subtract your take-home amount from your non-BT credit card statements.
- In this case, $5,000 – $2,300 = $2,700 is your extra amount you can put towards your balance transfer cards.
Here is how you allocate amounts that go to each card
- Look at the 2nd tab if the average payment total is less than your estimated BT allocation, then make a payment equal to each average amount. You can either add an additional amount to an emergency fund or use the additional amount to pay down your earliest BT card.
- If your average payment is more than your estimated BT allocation (in this example, $2,700 is less than the $3,000 from the screenshot) then lower your payments on the cards that have the longest duration away from having 0% APR.
- Alternatively, depending on how many months you have left on your 0% APR, you might want to do minimum payments on the longest duration of 0% APR cards and put all of your extra funds on the card with the shortest remaining 0% APR.
Remember, the name of the game is to extend the amount of 0% APR until your balance is paid off.
If you do run into a situation where you can’t pay off your credit card before the intro APR runs out, you can get another credit card with favorable balance transfer terms and move the funds.
You can see that for Barclay Ring, I have 4 months remaining and I’m slightly behind in my average monthly payment. However, I do not want to get another BT card and want to aggressively pay off this card. So I’m focusing a majority of my budget to pay off Barclay Ring first before APR hits.
So even if things don’t go my way financially in time, it will still be another 6 months for me to even consider getting another balance transfer card.
Student Loans, Balance Transfers & Other Investments
I will be the first to say that putting high-balance student loans (or other loans) is an unorthodox idea, and not ideal compared to what other financial experts say. It is risky.
On the flip side, there are a lot of discussions regarding “should I invest in X vs paying down my loans?” types of questions. While I do believe that restrictive financially savvy choices are likely to better off long-term, it’s not worth the mental stress of looking at your biggest financial demons.
To me, I won’t feel better knowing that even though I might have saved “$5,000” in an IRA when instead I could have paid off 1/4th of a $20,000 debt with 8% interest.
The moment I was able to push my loans to credit cards was probably the most freeing moment I’ve had mentally (TAKE THAT, 14-YEAR-OLD DEMONS!)
I was no longer paying $4K/year in interest on something that I couldn’t see.
Ok, I’ll stop being preachy. I’ll probably create a video to better describe the budgeting process at a later date. Stay tuned!
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