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I have an old consolidated student loan at 9% interest. I have a credit card offering 3.9% for the life of the loan. Should I do a transfer of the old loan balance or is that not a good idea?
Be very careful before switching the student loan to the credit card. Even though the card's rate looks great compared to your 9%, it may not stay that way.
A fixed credit-card rate is a lot different from a fixed student-loan rate. The 3.9% could quickly disappear if you make one late payment -- either on that credit card or any of your debts with other lenders.
This "universal default" concept is becoming more common and is costing borrowers a lot of money. Paul Richard of the Institute of Consumer Financial Education points out an example of one card that starts with a 3.9% rate and quickly rises to 24.99% if you're late on a payment to that lender or any other creditor -- in addition to a late fee of $35 on balances of $250 and over ($15 for smaller balances). And many card companies can raise your rate with just 15 days' notice. Look at the fine print to see if the card you're considering has similar rules.
Before making this switch, also consider any other sources of low-interest loans, such as a home-equity loan. In that case, a fixed rate really is fixed and adjustable rates can't rise nearly as high. You'll also be able to take an income-tax deduction for the interest you pay (which could also be the case with your student loan, if you qualify). Credit-card debt, on the other hand, is not tax deductible.
If you're still interested in switching the student loan to the credit card, don't charge anything else on that card. Card companies generally charge higher interest rates for new purchases, but your payments go toward the lower rate debt first. And don't be tempted by the fact that the card company will require a much lower minimum payment each month than you currently have with your student loan. If you only pay the minimum, you'll get eaten alive with interest costs over the extended life of the loan. Calculate a monthly payment that would let you pay off the balance in the same amount of time (or sooner) than your current student loan.
Whether you shift this loan to the credit card or not, the new rules about late charges make it a good idea to sign up for online bill-paying, where your monthly bills are paid automatically from your bank, so you'll be less likely to suffer expensive consequences if any of your bills get lost in your mail pile and miss your lender's deadline.
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