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Kr33ker
Posts: 143
Registered: ‎04-11-2012
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Pay off full student loan balance ($4.2k), or continue to make $480 payment per month?

The answer to this question almost seems like a no-brainer, but I figure I'll ask you guys anyway.

 

I'm currently paying back  at $480/month ($400 over minimum) a small student loan balance of $4.2k from when I graduated in 2011. I'm an engineer and currently make $50k/year, and have $12k sitting in a checking account making 1% interest. I was originally not paying off the loan to boost up my credit portfolio, but I now have a pretty good score + cards, and can garden if my score takes a hit.

 

Should I pay it off in full? I'm thinking I should.

 

Any other investment options? I was leaving the money in the checking account because I was lazy and didn't want to make any bad decisions with my money.

IT (11500 CL), Freedom (5000 CL), Zync (500 CL), PFCU (500 CL)

Starting Score: 699 EQ (4/11/12)
Current Score: 761 EQ (8/15/12)
Goal Score: 800+ EQ
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SCF
Posts: 1,037
Registered: ‎06-09-2008
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Re: Pay off full student loan balance ($4.2k), or continue to make $480 payment per month?

I'd say pay off the loan.  Paying it off probably won't impact your score much either direction, but the good history from the account will remain for about 10 years (and in the interim, you'll hopefully build history with other accounts to replace it when it finally does fall off your report).  In terms of a financial decision, you'll save a good amount on interest depending on your rate.  You'll also never be at risk of missing a payment (due to forgetfulness, error or anything else) and have one less thing to worry about each month.

 

It sounds like you'll still have plenty of money left on-hand for an emergency afterward, so I would just pay it off.

Contributor
Kr33ker
Posts: 143
Registered: ‎04-11-2012
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Re: Pay off full student loan balance ($4.2k), or continue to make $480 payment per month?


SCF wrote:

I'd say pay off the loan.  Paying it off probably won't impact your score much either direction, but the good history from the account will remain for about 10 years (and in the interim, you'll hopefully build history with other accounts to replace it when it finally does fall off your report).  In terms of a financial decision, you'll save a good amount on interest depending on your rate.  You'll also never be at risk of missing a payment (due to forgetfulness, error or anything else) and have one less thing to worry about each month.

 

It sounds like you'll still have plenty of money left on-hand for an emergency afterward, so I would just pay it off.


Thanks for the response. I just realize I did not even mention the rates of the loans... 1 of the loans is around $1k @ 6.8%, and the rest is at 4.2%.

 

What about the tax deductions from the student loan? Can you explain when it is beneficial to keep a student loan? Is it only beneficial when you have other higher priority loans/expenses, and pay less on the student loans because they usually have lower APRs and can get the tax deduction making the effective rate even lower?

 

Regarding the missing payment statement that is really not even a consideration because I have the money automatically being pulled out of my account.

IT (11500 CL), Freedom (5000 CL), Zync (500 CL), PFCU (500 CL)

Starting Score: 699 EQ (4/11/12)
Current Score: 761 EQ (8/15/12)
Goal Score: 800+ EQ
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bahbahd
Posts: 731
Registered: ‎08-12-2011
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Re: Pay off full student loan balance ($4.2k), or continue to make $480 payment per month?

[ Edited ]

The tax deduction you will get for the interest will not offset actual interest incurred. I also think you are close to or already in the salary range where not 100% of the interest is deductible anyway, only a certain percentage. The accounts in good standing will continue to report 10 years from close date. You will have plenty of time to create other good tradelines before they fall off. At the interest rates your loans are at, you are better off paying them off in full and starting some diversified investments. 

 

Re: Is it only beneficial when you have other higher priority loans/expenses, and pay less on the student loans because they usually have lower APRs?

 

In general, yes. Sometimes you might pay off or save for other loans that don't have deferment or forbearance options. Most of the time you want to pay off highest interest rates first.

Contributor
Kr33ker
Posts: 143
Registered: ‎04-11-2012
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Re: Pay off full student loan balance ($4.2k), or continue to make $480 payment per month?


bahbahd wrote:

The tax deduction you will get for the interest will not offset actual interest incurred. I also think you are close to or already in the salary range where not 100% of the interest is deductible anyway, only a certain percentage. The accounts in good standing will continue to report 10 years from close date. You will have plenty of time to create other good tradelines before they fall off. At the interest rates your loans are at, you are better off paying them off in full and starting some diversified investments. 

 

Re: Is it only beneficial when you have other higher priority loans/expenses, and pay less on the student loans because they usually have lower APRs?

 

In general, yes. Sometimes you might pay off or save for other loans that don't have deferment or forbearance options. Most of the time you want to pay off highest interest rates first.


Thanks for the reply!

 

Just sent a payment of $4,173.32 to pay this thing off :smileyhappy:

 

IT (11500 CL), Freedom (5000 CL), Zync (500 CL), PFCU (500 CL)

Starting Score: 699 EQ (4/11/12)
Current Score: 761 EQ (8/15/12)
Goal Score: 800+ EQ
Valued Contributor
IOBA
Posts: 2,659
Registered: ‎08-13-2009
0

Re: Pay off full student loan balance ($4.2k), or continue to make $480 payment per month?

Kr33ker - now don't you feel good?  :smileywink:


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