Best SL payment option?

[dawsonmel]

 Can anyone help? Here's one of my situations I have 2 student loans, one is about $3000 the other is about $9000. should I A) payoff the $3000.00 asap (interest rate 1.8%) Or B) continue to pay it off monthly and use the $3000. to put towards the downpayment of the house and other expenses that come along with. The monthly payment on this loan is about $30.00 a month. I figure a positive history of paying on time might be better than just paying it off in full. (It's on autopay) The two student loans are the only bills I have left. I have been working on this for some time and came up from a score of 420

(edited title only to match post content when this post was moved to this board. - Scamp, Mod)

Message Edited by Scamp on 02-21-2010 09:13 AM

[SCF]

Hi dawsonmel,

With an interest rate of only 1.8% I think you should definitely consider not paying off this loan and instead using that money elsewhere.  What's the interest rate on your $9k loan?  When are you buying your house and what kind of down payment do you have aside from this $3k?  What emergency savings do you have available other than this $3k?

Given the low interest and payment, unless you are very comfortable with the money you have saved for your down payment and your emergency fund, I would hang on to the money and use it in one of those two places.  Instead of paying the SL down immediately, I would increase the payment to double or triple the minimum to get it paid off much faster without leaving you with a low down payment or no savings.

Good luck, and congratulations on buying a house!

[dawsonmel]

Thanks SCF!

The interest rate on the other loan is 2.5% I have a little over $10,000 saved up for downpayment. I would LOVE to buy before April but realistically I may be looking more along the lines of 10/2010. I have no emergency savings just the $10,000. I plan to have another 5000.00 between now and October.  I do have a secured credit card with $1000.00 on it. Unfortunately that is the extent of my emergency fund. I have 8000.00 in my 401k. I was thinking about paying out the entire 3000 over 1 year that way it can help my credit report and be over and done with. I am sure an extra $30 will come in handy.

[Peach8321]

With such a low interest rate, I wouldn't pre-pay at all.  You can put that $3000 in a CD making 2% or more (Ally Bank, USAA, ING, etc) and make MORE on the CD than you pay in interest on the loan.

That being said, I do understand the desire to pay it off early!  I currently have enough to pay mine off in August but instead of doing so, I'm loaning some of it to my mother at 4% and pocketing the difference between that and my 3.25% rate on my loan.  It helps, of course, that I'm planning on going back to school and deferring!  But even if I wasn't, keep in mind that between (maybe) deducting the interest on your taxes and saving at a higher rate than you are paying, to pay early and in full is NOT great for increasing wealth.

Also, since you said you have no other funds besides a dp, I would keep that money available for an EF or for the "oh **bleep**" that comes up when you buy a new house ;-)

Hope that makes sense, but again, I understand wanting it gone too so if you decide its worth more to not deal with it than you're making in interest, go for it!

[dawsonmel]

Thanks for the great advice. I guess at some point in my life I want that truely debt free feeling. I can forget about all that once I get a house lol. THe interest rates are so low right now. Seems like they are talking 3.5% max on a 5 year. Pennies! It was all good 2 years ago. Oh well. I wouldn't dare lend it to family and expect anything back but excuses.  Ok so I won't prepay it. I'll pay it off regularly and invest a good portion of it. I am weary of the oh **** happening AND I have a student loan that needs to be repaid.