How much are your total payments each month? Is it manageable for you? Is it a significant portion of your monthly income? When getting a mortgage, banks will look at your DTI ratio, which is the sum of all your debt payments including the house, divided by your gross monthly income. Generally this number should be under 43%. If your current student loan payment, other debts, plus the potential payment of a house you'd like to buy is under that 43%, you should be ok.
I still think you should pay off the loan at 10.25%, or at least refinance it to a lower rate. That's burning money.
Starting Score: 515
Take the info from simulators with a grain of salt. If you want to pay off your higher interest loans, that's ok. Definitely get rid of the 10.25 % loan. I think it's more important to have cash available for your house, retirement etc. If you have a small balance loan at 4%, that's fine to leave that as your open installment loan if you really would like to pay your loans off.
@Anonymous wrote:Hello Everyone,
I am currently saving for a home but in my research debt can be an issue. I thought to myself why not pay off my student loans and get them out the way (Die Die Kill it with fire). Then I read that if you pay them off your FICO can take a hit. I only have the credit cards in my sig and the student loan accounts. Is it still the best thing to do?
These are some data points:
Loan balance: $28,963
Average interest rate: 5.66% (1 loan is a high 10.25 and the majoprity are 4-6.8%) I have been tageting my payments to the high interest loan so thats why my average is so low
No mortgage or Auto loans
I don't see a major downside but I thought I would ask. Thanks in advance.
Can you outline each loan - amount borrowed, remaining balance, APR?
Like others have said, pay of the highest APR loan first, but if you have others you really just need to have one open to help your FICO scores before trying to get a mortage. Just get the utilization ratio down below 30%, or 10% if you can.
