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NEED HELP! About to make final rehabilitation payment

Your FICO® Scores can impact your loan interest rates, terms, approvals and more.
Member

NEED HELP! About to make final rehabilitation payment

Hello, any help would be greatly appreciated. I just signed up for MyFICO, and have decided to finally take my credit serious. That being said, I am about to enter my final payment of loan rehabilitation of my 11 direct loans (8 subsidized, 3 unsubsidized), which total around 40K. I have the ability to pay off about 20K (half) of these loans, after they are sold and the rehabilitation is complete. Which ones do I pay off first????

 

I was told to pay the ones with the highest intrest, as that will help with the money aspect. I have also been told to pay the newest ones off first (2012 start date), and the leave the older ones (2008) until the end, for credit score purposes. Other then my student loans, I only have a secured capital one card, which is 6 months old, and a car payment, which is only 8 months old, all of which are paid on time.

 

I am worried about my credit history length being wiped out due to paying off these loans. When do I pay them off, after they go on my credit report and I see what is fixed, or do I try and pay them off as soon as they are sold. I'm really not sure what to do, as far as not messing up my credit score. Thank you

Message 1 of 12
11 REPLIES 11
Established Contributor

Re: NEED HELP! About to make final rehabilitation payment

It all depends on your income imo. If you wish for an Income-driven repayment plan like REPAYE, the government will pay 3 years of your subsidized loan interesr payments if your payments don't cover interest and half thereafter. Unsubsidized they cover half. So if you take into account the interest rates, you'll probably find that you'd pay off the unsubsidized loans first.
Personally I also look at my balances too. For example an 8% interest rate on a $1000 loan becomes less important imo than a 5% interest rate on a $10,000 loan, especially when they start capitalizing.
As far as your score, I was reading on a thread there is no score difference between a loan at 99% utilization and 1% utilization. I would also agree to leave oldest subsidized loans until last depending on if there is a significant difference in balance and interest rate. Really though, I wouldn't worry about it too much. They don't just disappear when they get paid off. They stay on your report and keep boosting your score. By that time you have paid all of them off you should have a better score and credit cards too, so it won't really matter much at all.
Just my opinion.



Message 2 of 12
Frequent Contributor

Re: NEED HELP! About to make final rehabilitation payment

not sure where you got that nonsense, but there is most definitely a score difference between 1% and 99% utilization on a loan. Unless student loans are different, which I don't think they are.

Search for SSL on this site.
2017-09-09 FICO 08: EQ 677, TU 640, EX 705
2019-04-05 FICO 08: TU 730
2019-04-21 FICO 08: EX 748
Gardening again until... soon(I need to replace my car)
Message 3 of 12
Established Contributor

Re: NEED HELP! About to make final rehabilitation payment

I mean ~9% not 1% and like I said, it was on another thread on installments loans.
I also see what they are taking about in my own scores. There's just not a significant amount of points involved from what I've read. I could be wrong.
Here's one of the threads:
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-Loan-Util-Thresholds/m-p/525...



Message 4 of 12
Established Contributor

Re: NEED HELP! About to make final rehabilitation payment

In contrast, look at the potential impact of lates on your score:
https://ficoforums.myfico.com/t5/Rebuilding-Your-Credit/30-and-60-Day-Lates-and-Score/m-p/5397771
This is why I stopped focusing on my loan utilization and redirected my efforts to my lates. I was able to get some removed through techniques I found on here. I've also put all of my cards on auto-pay (even though I already Pay In Full), a recommendation from this thread:
https://ficoforums.myfico.com/t5/Rebuilding-Your-Credit/ABCD2199-s-Eleven-Rules-to-Credit-Rebuilding...



Message 5 of 12
Frequent Contributor

Re: NEED HELP! About to make final rehabilitation payment

It's not clear what your goals are - are you trying to pay the least amount in interest? Are you trying to maximize your FICO score? Do you intend to get loan forgiveness on your loans? Sometimes these goals are at odds with each other so we need to know which is more important to you right now to give you advice relevant to your situation.

 

Also, could you list out each of your loans, the balance, and interest rate? Also are the student loans federal loans? Subsidized or unsubsidized?

Current Cards:
Goal Cards:
EX 8: Jan 2018 - 546 | EQ 8: Jan 2018 - 571 | TU 8: Jan 2018 - 566
EX 8: Jun 2019 - 578 | EQ 8: Jun 2019 - 601 | TU 8: Jun 2019 - 605
TCL: $3,500 | AAoA: 8.4 yrs | Util: 64% (high due to charge-offs - I'm working on 'em!)
Cleaning up and rebuilding after a long hiatus from credit
Message 6 of 12
Member

Re: NEED HELP! About to make final rehabilitation payment

Direct Subsidized:

6,000 6.8% Jan 2008 

5,780 6.0% Aug 2008

3,271 6.8% Aug 2008

839 6.0% April 2009

6,368 5.6% Aug 2009

562 5.6% March 2010

6,561 4.5% July 2010

1,294 3.4% August 2012

 

Direct Unsubsidized:

2,995 6.8% March 2010

2,906 6.8% July 2010

6,685 6.8% August 2012

 

Car loan: 13,000 12.5% Feb 2018

Capital one secured: keep utilization below 20% september 2018

 

All of these loans are federal direct loans, and I plan on having 90% of them paid off in the next 2 years. I figured I would start with the unsubsidized loans, as there APR is the highest and they are the newest. My real question here, is that I only have these loans, and a car loan and one credit card, both of which are less then a year off. I'm afraid by paying all of these off, my credit history will shrink to 2-3 years, instead of 9 years plus. My goal is to start looking at buying a house next year, and my scores are approaching 600, and I dont want to mess that up. Once i come out of rehabilitation I hope these scores will increase. I know I dont make clear what I am asking, so I am sorry. I guess I'm just wondering what you guys would do in my situation. I make about 80k a year, and have never really worried about credid until recently. I have 3 20k bonuses coming in the next 3 years, and planned on using the first to pay off half my student loans.

 

 

 

Message 7 of 12
Established Contributor

Re: NEED HELP! About to make final rehabilitation payment

Are those amounts after the capitalization of the interest?
The loans don't immediately drop off your credit report because you pay them off. By the time they drop off, you'll have other things on your credit report that more than compensate, not least of which I would recommend be a few non-secured credit cards after your scores have recovered in a year or two. By the time the loans come off, your cards will pick up the age and there will be little to no impact. The rehab will also remove the default from your report.
I see you're focused on your student loans but my advice is to focus the your car loan first with the 12.5% APR. I would pay that off first, if there's no prepayment penalty. Federal student loans have a lot more protections such as if you have hardship and can't make payments.
(I'd also consider saving the remaining money towards an emergency fund, even though the loans will accrue interest faster than a savings plan.)
Second, unless you're going to be enrolled in an Income-driven repayment plan that will be paying your interest at your annual income (in which case they would be paying for the first 3 year's interest of your subsidized loans), I would attack the loans by APR and amount:

6,685 6.8% August 2012 Un
6,000 6.8% Jan 2008 Sub
3,271 6.8% Aug 2008 Sub
2,995 6.8% March 2010 Un
2,906 6.8% July 2010 Un

5,780 6.0% Aug 2008 Sub
6,368 5.6% Aug 2009 Sub
6,561 4.5% July 2010 (this will accrue interest much faster than the $562 at 5.6%) Sub

Last 3 in any order (interest difference minimal):
839 6.0% April 2009 Sub
562 5.6% March 2010 Sub
1,294 3.4% August 2012 Sub

This is just my opinion, based on what I would do.
Hope this helps.
Edit: ""the government offers a subsidy to borrowers on IBR and PAYE. For three years it will cover unpaid interest that accrues each month, but only for subsidized loans.

REPAYE improves upon the current system. The government offers the same subsidy the first three years in repayment, plus it will cover half the accruing interest after that, on both subsidized and unsubsidized loans" - NerdWallet



Message 8 of 12
Frequent Contributor

Re: NEED HELP! About to make final rehabilitation payment

Yes, you will save the most on interest if you attack the car loan first. It doesn't make sense to pay loans at 6-7% first rather than a loan at 12.5%. (Does the car loan have a prepayment penalty?)

Current Cards:
Goal Cards:
EX 8: Jan 2018 - 546 | EQ 8: Jan 2018 - 571 | TU 8: Jan 2018 - 566
EX 8: Jun 2019 - 578 | EQ 8: Jun 2019 - 601 | TU 8: Jun 2019 - 605
TCL: $3,500 | AAoA: 8.4 yrs | Util: 64% (high due to charge-offs - I'm working on 'em!)
Cleaning up and rebuilding after a long hiatus from credit
Message 9 of 12
Member

Re: NEED HELP! About to make final rehabilitation payment

Its been a month or so, and I have decided that paying these off interest first, as Sabii suggested makes the most sense. One other quick question, if I may. As of now, I just made my last rehabilitation payment, and have just recived my first retention bonus (20k). I only have 1 installment loan as of right now (my car loan), but will soon have 11 student loans as installment loans on my credit report. I want to pay my car off first, but do I wait until the student loans are updated on my credit report, or pay off the car now? I was thinking if i had 12 total installment loans showing at once (car loan and 11 student loans), then paying off the car wouldnt hurt as bad. Or should i pay off the car, my only installment loan in good standing, and wait for the student loans to come out of default?

Message 10 of 12