Sallie Mae vs. Citibank

So, my husband and I made a decision recently. It’s kind of a big one, and we’ll see how it shakes out.

Before I launch into the story, some info:

The car loan is down to $241.77. (This is the loan we’ve been hitting the hardest and snowflaking all of our extra money towards.) The Citibank loan will be down to $500 tomorrow, when the automatic payment goes through. (Although a lot of our Debt Eradication funds go to this account, it’s an automatic payment and it’s at a 0% interest rate until September, so we were focusing all extra payments on the car loan instead.)

We owe Sallie Mae a bunch of money, but most of it is at a “reasonable” interest rate. However, the last loan my husband took out for his final semester of graduate school sits at $6,274.44, with an interest rate of 8.375% (which is .25 lower than the original interest rate, as we went to automatic payments and that gave us the benefit of a slightly lowered interest rate). When I was telling my mom about how great it felt to only owe $274 on our car loan and be thisclose to paying it off, I told her we would then direct our attention to that crazy private student loan through Sallie Mae. She was shocked at the interest rate and told me I should use one of those “checks” that credit card companies send you. Those checks end up acting as balance transfers (subject to a balance transfer fee), but you can often get some kind of deal where you don’t pay interest for 12 months. If, of course, you don’t pay off the loan in 12 months, you get hit with a high interest rate.

Well, at first, I pooh-poohed the idea. Seriously, the transfer fee alone would probably be high. I did check into our credit union, but realized that they couldn’t give me an interest rate lower than 8% anyway.

But then we got those checks in the mail (fortuitous timing?) from our Citibank card account. 12 months, 5% transfer fee, no interest until August 2015. So we sat down and talked about it. 8+% interest on a $6K loan is a lot, for sure. But that didn’t end up being the reason we decided to pay off the loan with a Citibank check. In fact, I did some calculations based on how quickly we will be paying off the loan, and I actually think we will only end up saving about $80.

So why bother?

In the end, our decision was based on the following:

• We won’t have to worry about what will happen when our loan is no longer in its “grace period.” Sallie Mae is a sneaky company and I know they will try to screw us over. Because they already do that.
• Sallie Mae requires a paper check and a separate piece of paper sent with it every time you want to pay more than your minimum. That paper has to have directions for how the extra payment should be allocated. So, whenever we want to pay more than the minimum payment (which would be multiple times a month, judging by the way I snowflaked money to the car loan), we’d have to do that, and then wait for the payment to post. And double-check that it was done properly. This would be SO ANNOYING.
• We will know where we stand with the loan at all times and not worry that a payment won’t be allocated correctly.

Those reasons alone made us write that check, wrap it up in a sheet of paper with explicit instructions, and send it off.

Our Citibank card had been doing beautifully – steadily decreasing by $500 each month. Not gonna lie – really not looking forward to how this change is going to look on our credit, or on Mint.com. However, we will still be in our credit limit on that card, and we pay off the other two every time we accrue a balance.

Additionally, I also made sure that we could still pay off the balance on the Citibank card by August 2015, even if I do not put any side hustle money or snowflake any money towards the credit card balance. Merely by continuing our $500 regular payment and then adding the $172 we’ve been spending on the car loan each month, we should be able to knock out the loan in 10 months. That even includes the 5% transfer fee.

If we DO add in my side hustle money (and it continues to be more than $1000), then that will get paid off more quickly. I still plan to divide my side hustle check into 80% Debt Eradication (the Citibank Card loan), 10% savings, and 10% IRA. (At least, that is the current plan.)

I don’t think this was a bad decision, but I’ve never done anything like this before, and I’m a little nervous….

– M.