Paying off Student Loan

[Anonymous]

I thought having a student loan was not suppose to hurt my score, yet it is the recommendation for improving my score.  I thought it acted like a house mortgage whearas if it was your only debt, it was a good thing.  Feedback please...

[Anonymous]

I would like an answer to this too. I just paid off a student loan, but then realized I may have been better off in terms of my credit rating leaving a small balance to pay off slowly.

[Anonymous]

IMO-

The only downside of paying off a SL is if you do not have any other installment accounts- you will lose a few points for credit mix 10 to 20 points.

I still have 9K to pay off on mine- and at 7% it is the highest interest rate (pre tax deduction) I pay. 

As I don't think I will be able to deduct the interest this year- my SL has moved up on my pay-off list.

[Anonymous]

You really need to have at least 1 revolving account-

Revolving counts much much more in scoring than installment accounts-

Available credit and debt are NOT the same thing-

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Babbitt wrote:

I thought having a student loan was not suppose to hurt my score, yet it is the recommendation for improving my score.  I thought it acted like a house mortgage whearas if it was your only debt, it was a good thing.  Feedback please...

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[Anonymous]

I paid off my Student Loan last year, as a reccommendation from my Mortgage lender. I was told that the fewer revolving monthly fixed payments I had, the better I would look. I also needed to reduce my DTI. I did have My FICO shoot up to 793 from 764 when I paid off Sallie-Mae last January.

If you're not applying for a Mortgage,  and your DTI is normal,you're probably fine.

[Anonymous]

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Timothy wrote:

I still have 9K to pay off on mine- and at 7% it is the highest interest rate (pre tax deduction) I pay. 

As I don't think I will be able to deduct the interest this year- my SL has moved up on my pay-off list.

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To those that don't understand what Timothy is talking about SL interest can be deducted if your ADJUSTED gross income is less than $65K  ($135K if married filing jointly).

Why this matters is since you can deduct it you get portion of your interest back.  If you are in the 25% bracket and have a 6.8% loan it is like getting 1.7% back.  This makes your effective interest rate 5.1%.

So if you had the following debt

Mortgage @ 6.00%  (deuctible if itemizing)
Student Loan @ 6.8% (decuctable w/o itemizing if under $65K/$135K)

Car Loan @ 5.49%

Credit Card @ 14.9%

Obviously you should pay off the Credit Card first = most bang for you buck.

Now the SL has higher Interest Rate but if you can deduct it it actually is better to pay down car note next.

Between the SL and Mortgage it is better to pay down the SL unless for some reason you aren't itemizing (interest is too small) and you can deduct the SL.

It can get complex but ALWAYS look for the best bang for buck when paying down debt.