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Repaying Student Debt for Maximum Creditworthyness
ChrisDude
Registered User regular
Registered User regular
Hello H/A, I couldn't (easily) find an answer to this online so here I am! I have about 20k in student debt that I'm repaying little by little. It's broken up into 4 groups, 2 with about 6k and 2 with about 4k. My grandmother recently passed and left me 10 grand to put toward my student debt. I'm planning on paying down the two groups with the highest interest rate, but my question is: will totally paying down one of the groups increase my credit rating? I've got pretty good credit already but of course it's always nice to make it even better. I'm pretty sure I've noticed on previous credit reports that they're all separate loans, so closing them off as paid would make the scores go up, yeah? Also, will doing that lower my student loan payments since I won't be paying nearly as much in interest?
Chris Pennell Is A Huge Nerd - My blog. I talk about nerd-ish things a lot.
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If you don't have any savings you might consider keeping some of the inheritance for a cushion or for emergency purposes (e.g. car repairs or medical expenses).
Your minimum payment will go down when you pay a loan in full, as loans are organised to provide revenue over time (this is why some banks have early payoff penalties on their loans - make sure that your loans don't!)
Student loans are non-revolving credit, so it's looked upon a little bit differently than, say, credit cards, where carrying a high balance is decidedly bad and paying them down has a significant measurable impact on your credit.
Paying off a student loan in full will show creditworthyness, but it will not exactly be a tidal wave of good will on your score. More like a "congratulations, you didn't fuck up".
Still, paying them off ASAP is good for you overall.
we also talk about other random shit and clown upon each other
Student loans still in good standing usually do not affect your credit in a bad way.
Plus loan minimum repayments are set up to eventually pay off your debt. Card minimum payments are set up to keep you in debt forever.
Unless the card debt is on low interest rate somehow, I'd be paying off the card debt in full and putting the rest to student loans, not the other way around.
This.
Unless OPs credit is 850 there's no way his credit card APR is lower than the interest on his student loans, even if he's got shitty private student loans from Sallie Mae.
Pay down all of your credit card debt first. Then pay off all of your private student loan debts. Then, whatever is left over, pay of the rest of your federal loan debts.
If you're in deep waters with financials already, my advice is different, but that's how you do it when everything is peachy keen.
As @Zepherin says, student loans are an above the line deduction on your taxes, the interest anyways. So when you make a payment to interest on the student loan debt, you get to deduct that from taxes you paid plus the standard deduction you get for everything else. So of all the debts to pay off, student loan and mortgages should be the last. They're "good" debts.
Obviously some are less good than others, which is why you pay off the private loans first. "Why?" you ask. Well, because private student loans have far less protections than federal loans. If you lose your job, typically you can put your federal loan on hold indefinitely. If you don't get a job for 10 years, typically the loan is forgiven (this is a new rule I think actually). Private loans, if you lose your job? You are fucked. Some creditors are okay, some will work out repayment plans, but if you're like most students, and you do have private loans, there's about a 98% chance you have Sallie Mae, and they will ass fuck you sideways until you bleed money. It doesn't matter if it's impossible, it'll happen. Shit they'll try to put liens on your vehicles or whatever the fuck they can get their hands on.
So, find out if you have private loans, trust me, you'll want to know. Typically the dead giveaway is if the group has a >7% interest rate on it. But that's not always guaranteed.
If you are in deep water financially, typically you'll want to pay off private student loan debt first, then federal, then credit card. Credit card debt is dischargeable in a bankruptcy.
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596) Student Loans
OP, if you want a meaningful answer, you may want to provide a more detailed accounting of your (liquid) assets and debts. It's relatively straightforward to prioritize one debt over another, but it sounds like you have a lot more going on than just, "Should I pay off my student loans early?"
Well, a few months after paying off any loan will boost your credit score too. Something to do with worthiness. Credit Cards don't really get the same treatment as full on unsecured loans.
Yeah, sounds like you are in good shape.
If you have no debt other than your student loans, you have some savings, and won't be taking on other higher interest debt in the foreseeable future, pay off one of your 6% loans completely and put the rest into the other 6% loan. If you have any 6% debt remaining, keep paying the same amount monthly you would be paying now with all four loans, but put minimum payments into the 3% loans and everything else into the 6% loan.
After the 6% loans are gone, keep paying the same amount as your current monthly payment (or at least as much as you can afford) and make the minimum payment on the larger of your 3% loans and put the rest into the smaller 3% loan.
In my experience, and I'm not sure if it's changed, regardless of the amount owed, each Federal loan will have a $25 / 50 minimum monthly payment. It will be a small boost to your credit if you concentrate on one loan at a time, since the minimum monthly payments for all your loans will be a bit smaller if you pay off one loan completely vs. lowering your total balance among all loans.
Just be aware of your upcoming expenses. If you're going to be buying a house or car in the near future, that $10,000 may be more beneficial going towards a down payment on your house (if you can't get a 20% down payment otherwise) or going towards a down payment on the car loan. Or, if your car breaks down and you need to put $4,000 on a credit card for repairs.