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Student loan Balance and which to pay first

Hutchman92
Valued Member

Student loan Balance and which to pay first

Hello, so I have around 8 student loans accounting for roughly 30k. I went through a period several years ago where the loans were in default and subsequently hurt my credit. I then made 9 consecutive payments (5$ income based) and my loans because current. The caveat is they were actually sold to Navient and the old loans show closed transfered. How does this effect my credi and do I have any recourse? Most important, which should I start paying first? I have some small ones $300-500$ and a couple around $5k. Obviously I want to pay the unsub first and at least pay the max interest ($2500 I believe) so that I can take off of my taxes. Should I only pay intestest to take advantage of tax write off or should I pay smallest unsub first? Also in regards to utilization, some are over the amount borrowed due to intestesr accruing in forbearance. Should I pay them all down to under 100% or should I pay smallest first? Also, I read somewhere here that there's a secret if I pay all of the loan except for 5-10$ then the loan continues to report and is good for installment and age history. What are your thoughts? I'm so tired of being in debt and finally in a position to pay some down on a monthly basis but want to pursue the most advantageous strategy. My credit has went from 500 to 660 in last two years and the student loans and car loan are the only debt I have. All CC are current with 1% balance and ideally I'd like to get rid of my 3 small cards (600$ limit) and keep my 1 3000$ CU card and perhaps find another higher limit card opposed to cap one $600 limits . Any advice is appreciated. Thank you so much and so happy I found this board. 

6 REPLIES 6
calyx
Super Contributor

Re: Student loan Balance and which to pay first

I'm going to tease out some answers, so please bear with me Smiley Happy

The caveat is they were actually sold to Navient and the old loans show closed transfered. How does this effect my credi and do I have any recourse? 

 

This is correct.   The default should have been removed, the lines closed and transferred is normal (I have them, too).  It's actually very good for your credit, because it pads the age.    There is no recourse, but as there is no damage, you should be OK.

 

 Most important, which should I start paying first?

 

That is entirely up to you.   There are several pay off schemes - the "snowball" where you pay minimums to everything, and pay the smallest loans first, adding the amounts you would pay for them to the next larger one (so the payment snowballs).   This has been shown to be the best for psychological reasons ("winning" by paying off loans quickly).

 

There is the "avalanche" method, where you pay off the ones with the highest interest first, minimizing the amount of interest you pay.  < This is my preferred method, but to each his own.

 

 Should I only pay intestest to take advantage of tax write off or should I pay smallest unsub first?

 

Are you in school now?  Because subsidized just means that there is no interest while you're in school (though right now, I assume your loans are Federal and at 0% thanks to the Executive Orders/CARES act - please correct me if I'm wrong).   As for maximizing the tax write off - you are only getting the money you pay into interest back (capped, of course), so I would disregard the "tax write off" since it's not like you're getting "extra" money back.  

 

Also in regards to utilization, some are over the amount borrowed due to intestesr accruing in forbearance. Should I pay them all down to under 100% or should I pay smallest first?

 

This is up to you - utilization has a much smaller impact when it is in regards to installment lines.    If we were talking about revolving credit, it would be another conversation.   I would ignore the utilization, honestly, especially if you're goal is just to get out of debt.

 

Also, I read somewhere here that there's a secret if I pay all of the loan except for 5-10$ then the loan continues to report and is good for installment and age history. What are your thoughts? I'm so tired of being in debt and finally in a position to pay some down on a monthly basis but want to pursue the most advantageous strategy. My credit has went from 500 to 660 in last two years and the student loans and car loan are the only debt I have.

 

I suspect the secret is the 9% utilization "boost" you get from FICO.    Please note that this boost comes from your aggregate utilization, which includes your car loan.  So, yes, you could get a boost if you paid each one down to a small percentage, and if that (plus your car loan utilization) is <9%, you'd get some extra points.   As an example, my student loans are at 48% utilization, but with my auto loan, I'm actually at 55% utilization.   Even if I paid my SLs down to $50 (which would be .2% util there), my total loan utilization would be 29%... so I would not get that bump.

 

You can pay down the loans to a small amount for age, if your servicer lets you ride out the time on the loan, that's great!  But not all do.   I wouldn't rely on it as a tactic - I had my loans out to "next due" by 3 years, and the COVID forebearance changed all of that (I suspect that when my loans were transferred it would have knocked that back, too).

 

Best advice:  Pay down your loans in whatever way makes the most sense to you.    I am focusing on my auto loan because my student loans are at 0% right now (it goes back to that "avalanche" highest interest tactic I prefer).   Some people are accelerating their student loan payments while they're at 0% so they know 100% of payment is going to principle, so when the forebearance ends they will have less due *and* less interest to pay.


Definitely keep up with the student loan payments, and keep working on your credit file.    The key is patience, since so many of the factors for a good score are tied up with time, and there's not a lot you can do there.    IMany banks use soft-pulls to increase their credit limits over time (and maybe you can get CLIs from the ones you hold now).  Cap1 is known to "bucket", so just wait a bit, and grab some cards that are more reliable about CLIs (Citi, Discover, BofA, etc).

 

And just FYI: You don't need a lot of credit lines for a good score, just a long positive history.  My partner had one installment (mortgage) and a single revolver and still had scores in the 800s.     If you can make the cards work for you, that's awesome, but if you decide you don't want/need more cards, that's also OK.   I know we're a bit credit card obsessed on this board (which makes sense), just know it's not necessary for a great score.

RIP:

F8 EQ: 809 | EX: 802 | TU: 805 | Accounts: 0/6 3/12 5/24
Happy practitioner of AZE7or8or9or10 | Team Finances > FICO
Message 2 of 7
Hutchman92
Valued Member

Re: Student loan Balance and which to pay first

Thank you for the information. The student loans were indeed transfered however before they were transferred (or during which I suspect) they were closed and reflect negative payment history albeit the new transfered loans reflect as positive. Is there anyway I can remove the old loans from fed service with the negative history?   In regards to  the tax credit  the  tax payable for the $2500 interst only reduces your taxable income so basically $2500 \ $20% taxes .  Great info though thank you. I had no idea that it doesn't help boost unless the overall installment loans together are under 9%

Message 3 of 7
calyx
Super Contributor

Re: Student loan Balance and which to pay first

Negative payment history can stay - there's nothing wrong about that.   Just the default needs to be removed (legally).
You can try to see if the servicer will delete the tradeline through Goodwill letters, but it is not likely (the HEA requires the negative information to stay).

RIP:

F8 EQ: 809 | EX: 802 | TU: 805 | Accounts: 0/6 3/12 5/24
Happy practitioner of AZE7or8or9or10 | Team Finances > FICO
Message 4 of 7
Hutchman92
Valued Member

Re: Student loan Balance and which to pay first

Okay. I guess I just hate that those closed loans show all of the late payments and then they transfered them before I could get out of default. So I don't think it says default but it does show over a year or two late on all 8-10 loans which kills my payment history but the new loans show current. So while the age of accounts helps it has to hurt me also for the negative payment history. Do you have any good resources you use or would recommend to learn more about credit secrets/loop holes/ or just best practices? I've googled about everything but was curious of any known resources that may not be streamline. 

Message 5 of 7
calyx
Super Contributor

Re: Student loan Balance and which to pay first

Honestly, you're at the best resource.
Most of us have been through what you've been through and have done everything legally possible to clean up our credit.  The rebuilding forum was absolutely instrumental for me.


I never intended to actually improve my FICO scoring or even get credit cards - I came here just to figure out how to clean up fraudulent accounts and a messy student loan history - and thanks to myFICO forums, I was able to do that.


The problem with student loans is that the HEA mandates additional reporting, above and beyond the FCRA, so there is a lot less wiggle room for gaming the system (for example, collection agencies like PRA that do pay-for-deletes do it in violation of agreements with CRAs, but these federal servicers could lose their contracts and get in trouble with the feds if they violated the HEA).    With some servicers, you can sweet talk them into dropping tradelines altogether (I did this with my defaulted tradeline) with the right circumstances/language/and how generous they're feeling, but most of the servicers are nearly impossible to get to do that (which, is legally correct, don't get me wrong).

RIP:

F8 EQ: 809 | EX: 802 | TU: 805 | Accounts: 0/6 3/12 5/24
Happy practitioner of AZE7or8or9or10 | Team Finances > FICO
Message 6 of 7
sneha2020
New Visitor

Re: Student loan Balance and which to pay first

Hello Buddy,

 

We already know that we can get loan easily after submitting our documents, but it is really cumbersome procedure. And after some time we have to pay the whole amount and interest to the bank. I have taken the loan from SBI Bank and after some time they send me messages for EMI, so they remind us again and again, which is really create pressure on us. So i does not suggest for loan.

 

Thank you

Message 7 of 7
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