Going (almost) all in on the credit juggling scheme: part 1

I often get a lot of useless junk mail from my credit card distributors, but this was the first time I got one that I actually decided to act upon.

Every once in awhile, my Mastercard does these 0.99% AIR promotional rate on balance transfers that would last for about 12-15 months. But I never before chose to take advantage of it, mostly because my existing balance was enough of a boogeyman for me not to want to put more debt on my card. 

Also having an existing balance basically negates any of the positives of having a promotional annual interest rate due to how the company manages what you pay back on the card. (or so I've discovered, making me more than glad I didn't before make use of said promotion)

But for the first time ever, my card has been paid off in full. And having learned a few things about interest rates, payments and other things... well the offer suddenly became really enticing.

I bit. I withdrew $3,000 against my credit card balance of $5,300 at the 0.99% promotional rate on Tuesday. Within 2-5 business days, the amount I withdrew will hopefully land in my chequing account.

What am I planning to do with this money? 

I'm putting the full sum of money transferred... towards my student loans.

What I am doing is called a credit swap. This is when someone moves money from a lower interest credit account into an account with a higher interest in order to reap the benefits of paying less interest over time and therefore saving money. Consolidation loans or taking out a second mortgage in order to consolidate consumer debt within your home's equity works similarly. Granted, you only save if you do make the honest effort to pay off the so-called loan rather than use this new-found wealth as an excuse to spend.

Currently, my student loans accrue interest daily at 5.5% or around $4.30 a day, a sum that is 4.5% more than the 0.99% that the money I currently transferred out will accrue over the next 15 months this promotional rate lasts, or mid-April 2016. 

So what do I save moving that money from my credit card over to my student loans?

Over the life of the loan, I save over $1,000 in interest fees against my student loans and I shave off about six months in my repayment timeline. Right away, right now, I will shave off about $10 of interest every month. Even if you were to add the interest I would accrue from my credit card, I will still save at least $600... granted that is provided I pay back the total I borrowed before the end of the promotional period. And to do that means I have to pay back about $250 a month over the next 12 months to make this really work.

So if I'm saving so much money and this is such a brilliant plan, why didn't I just go all in and withdraw all that I was allowed to against my card?

Because I'm a chicken that's why.

Going a full 100% utilization of my card was something that I felt was too dangerous a total in my mind to try and repay back to Mastercard in a little over a year. Mostly because I'm still going to have to be paying down my student loans so it's not like the hefty sum of money I'm required to set aside to pay my loans can then be turned around and paid to my credit card.

Because of all that, I can't trust myself to pay that amount in time before the promotional rate ends and I rather not test my limits. $3,000 is scary enough a total as it is, but I strongly feel I can pay that back within the year.

This plan will hurt right now as this will really put a pinch on my budget and my monthly expenses. Also in the short term, I will be paying more in the form of interest every month between my student loans and at my newly returned minimum payment on my credit card.

Right now, I'm not 100% certain where the $3,000 I will need to pay back my credit card will come from. For now the plan is that some of it will come from the extra of about $50-70 dollars that I direct to my student loans every month for the short-term until it is paid off, another portion will come from any extra money I make and another chunk will have to come from my income tax return.

I am also icing the card for the time being until that total is paid off. This is due to the fact that any future purchases I make with the card will be charged using the regular interest rate of 18.99%. However, any payment I make will end up being split proportionally between both rates, as opposed to prioritizing the highest rate, meaning that using the card while on this plan could cost me more money in the end. So my second card will be getting the bulk of the action now.

So why didn't I just wait to accrue the $3,000 cash and put it to my student loan account and reap the benefits of the interest savings rather than do a credit swap and screw around with interest rates here?

Because after my last two months, I needed something to scare me and force me to stop blowing my budget all the time on being lazy. And my student loans weren't really doing it because the very size of it meant that it was a long-term thing, and that is easy for me to get complacent on, which I kind of did.

$3,000 on my credit card, regardless of the interest rate, has scared me and does scare me. Especially since there is essentially a ticking time-bomb attached to it in which if it goes off will cause chaos as far as this plan goes,  

But it is a total that I know I've beating down from before in about a year. And it will be a total I can beat back down from again. It forces me to be more conscious of my spending and ultimately, forces me to keep from spending as carelessly as I have been.

This post was brought to you by Liz Lemon, who is like my television twin. Except I'm maybe only half as awesome most of the time, though not even a fraction as cool as Tina Fey. Who is a God. That is all.