What should I pay off first?

[Anonymous]

I have two installment loans for education.  One is fairly large at $62K.  The other is small at $4,200.  I could pay off the $4,200 at any point, but it is also my oldest account.  Would paying it off help or hurt my credit score?  The interest is like 2.5% so I haven't been in any hurry, but it does show as an account with a balance.

One option I had thought about was to pay it down to about $3K so that it is down to about 29% of the original balance, but leave it around as long as possible after that because it is an old account.

Thoughts?

[Anonymous]

I would do what makes financial sense since you likely won't see much change in your scores by paying one off right now.  There are three things to think about I guess.

Utilization - makes very little difference for installment loans so forget about it Unless the current balance is higher than the original balance..  In which case pay that one down first.

Average age - this won't be affected until the account falls off of your report 10-ish years from when you finish paying off your loan.  So if you pay the loan off now, it will fall off in 10 years and your average age will fall a bit in 2019.  If you pay it off in two years, it will fall off in 12 years and your average age will fall a bit in 2021.  So you're just kinda delaying the inevitable..

Credit mix - since you have two open student loans, paying one off won't matter.

Considering all of the above..  If you want extra cash flow or you want to improve your debt-to-income ratio for a mortgage, pay off the smaller loan.  If you want to pay the least amount of interest, pay extra toward the one with the higher interest rate.

Message Edited by rmily on 01-23-2009 07:01 PM