Student loans: to pay off or not?

[Anonymous]

Hello-

I am in the unexpected position of being able to pay off my student loans (~40k.)  Is there any advantage to NOT paying them off at once?  If I do the calculations- what I would earn by putting the money in a savings account (or cd) + the tax deduction is about equal to the interest I am paying to Sallie Mae for the next two years, so there's no real financial benefit.  

Also, I have a small (3k) balance on a revolving credit card with lower interest than my student loans.  Should I pay it off? 

Any advice would be helpful,

thanks 

[mazinaige]

In The Money Book for the Young Fabulous & Broke, Suze Orman suggests paying off the debt with the highest interest rate AFTER contributing enough money to get the maximum company match for a 401k or if your student loan's interest rate is lower than 8 percent, use the extra cash to invest in a Roth IRA. (Orman, 2005: 129).

If you are not sure whether to pay off debt, save for retirement, or just put money away for an emergency fund...let the interest rates be your guide (Orman, 2005: 158).

[Anonymous]

Don't discount the psychological advantage of being...

DEBT-FREE

[mazinaige]

If you make more money on the interest in a retirement fund you also earn the benefit of an increased FICO score for maintaining good payments on a student loan TL and increase the AAoA. Being debt free does not show the ability to managing credit nor does it contributing to credit history. You are fortunate to have a choice to weigh your options. That said, from what I have read on the student loan board, student loan collectors are ruthless so there is psychological merit in setting yourself free now.

[Anonymous]

I always believe it is best to be debt free if possible.  I truly think that getting rid of debt makes a person feel a lot better about life in general especially in the current state of our economy.

I vote to pay the crap off asap.

TheTaxMan

[mazinaige]

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@Anonymous wrote:

I always believe it is best to be debt free if possible. I truly think that getting rid of debt makes a person feel a lot better about life in general especially in the current state of our economy.

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I tend to agree with TheTaxMan, however since reading these boards I have come to realize that student loans are weighed differently and perhaps more favorably by FICO than other debt. In Good Debt or Bad Debt; Financial Freedom, Suze Orman categorizes student loans as 'good debt' such as the investment in a home mortgage. In How Lenders View Student-Loan Dept, Lankford suggests that while student loans are looked at more favorably than credit card debt, lenders are still concerned about the debt-to-income ratio and your ability to make your monthly payments. In deciding whether to pay off your student loans early or not, it would be helpful to know your personal financial goals.

[grneydangl]

This is like more than a month old sorry... I don't know if you ended up making a decision but I was thinking, if you paid off the student loan first you aren't going to go out and get more student loan debt.  If you pay off the CC, there's the chance of using that CC to charge up another $3000.  Does that make sense?

When I was buying my condo, I had $10,000 to put towards debt, down payment, payoff car, etc.  My loan officer said "I would rather you pay off your car than your $5000 CC because you're not just going to go out and get another car; it would be much easier to charge up another $5000"

[Mark_in_Pasadena]

Pay it off.  It'll stay as a positive on your credit report for the next 10 years.  I paid mine off 9 years ago and it still shows on my credit report.  I have an 815+ FICO.

In those 10 years you'll have plenty of time to add other installment loans, such as low interest auto loans, to your credit history.