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Payoff of student loans and Credit Score

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

Re: Payoff of student loans and Credit Score

Loan #’s 2 & 4 are the highest interest @ 6.8%. Loan 4 is the smallest balance. 6 & 7 are 2nd highest @ 4.66%. 1 & 3 are 4.5%. #5 is 3.86%, but the largest balance.








Message 11 of 14
Moderator Emeritus

Re: Payoff of student loans and Credit Score


@macinjosh wrote:

Loan #’s 2 & 4 are the highest interest @ 6.8%. Loan 4 is the smallest balance. 6 & 7 are 2nd highest @ 4.66%. 1 & 3 are 4.5%. #5 is 3.86%, but the largest balance.


Ultimately it doesn't matter what the balance is when we're talking debt: just the interest rate

 

Pay off them in the order you have listed, 2, 4, 6, 7, 1, 3, 5 if you're trying to get out of debt the fastest and therefore save the most money possible.  I'd argue dumping 2 and 4 are the best financial moves just about anyone could make right now, guarunteed 6.8% in today's market?  Take it Smiley Happy.




        
Message 12 of 14
Community Leader
Super Contributor

Re: Payoff of student loans and Credit Score

Great advice thus far.  The only tweak I'd make is not to lower your balance to an ultratiny level ($2 was suggested).  We have had a number of people have their loans closed when they do that.  Many loan servicers have an unstated policy of doing that -- I had a very helpful customer service rep who walked me through that when I was planning to pay down my student loan.

 

What I would do is look at what the original monthly payment (OMP) was on your loan.  Then lower the balance to $2 more than that OMP.  And if the OMP was really small (e.g. $11) then make sure that the balance stays above $30. 

 

On a different note, if for some reason you only want your scores to go up (never down) then yes, I'd pay all loans to 8% first before paying any of them off.  Your scores will get to the same place regardless with a single open loan at a low balance, but some people don't like seeing their scores go down temporarily.

Message 13 of 14
Valued Contributor

Re: Payoff of student loans and Credit Score

Thanks CreditGuyInDixie. I’ll keep that in mind. My big concern is a massive score drop by paying them all off. But if lowering the balances to 8% first will lessen the score impact, I’m all for it.

Thank you for the input.







Message 14 of 14