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Old 07-19-2011, 02:57 PM
 
2,684 posts, read 3,099,398 times
Reputation: 1478

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I have been considering paying off my student loan in a lump sum for a while now. I'd like to hear some advice on whether it is a good idea. Here are some of the facts:

I have ~$14,000 loan remaining, down from original amount ~$20,000

The interest rate is only 3.75%.

I currently pay only $150 a month on this student loan, as it was the amount set up when I first graduated and I never changed it. My interest rate was reduced 1% after 36 months of timely payment according to original terms. My understanding is that if I adjusted my payment amount, my rate would return to 4.75%.

I make a very good salary, live comfortably, and always pay my credit card bills in full every month.

My husband and I have been discussing getting preapproved for a mortgage and other things, and I wondered whether having this debt would help or hinder us. I always thought it helped my credit to have the timely payments on the debt. Would getting rid of the debt completely be a good thing for my credit?

Any thoughts? I have a lot of cash in the bank so I consider just paying in full but I'm not sure of the cons.
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Old 07-19-2011, 03:10 PM
 
21,579 posts, read 36,422,679 times
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The basic question(s) you need to answer are pretty simple:

If you use the money you have in the bank to pay off / down the student loans will that hurt your ability to have a nice downpayment (like 20%) for your home.

If you currently only pay 3.75% on your student loan could ever find ANY other source of borrowed money as cheaply?

I think for MOST people the answer to the second question is NOT LIKELY.

So too is unlikely that you would NOT be in overall BETTER SHAPE having more cash for downpayment than paying off student loan, though the total picture of how your husband's savings are also useful to nice downpayment is important too.

Generally the wise use of credit is tricky and a record of having done so improves credit score. The total DEBT to INCOME ratio is hugely important to how much lenders will allow you to borrow. Online calcultors will help you see how having cash to use as downpayment AND some room on the debt side of your situation is needed to maximimize smart use of downpayment...
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Old 07-19-2011, 03:38 PM
 
Location: Holmdel, NJ
17,606 posts, read 14,176,711 times
Reputation: 10115
nope, you shouldnt do it

feel free to take a little pride in the fact that you could if you wanted to, but definitely dont.
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Old 07-19-2011, 03:38 PM
 
2,114 posts, read 2,001,524 times
Reputation: 1460
Quote:
Originally Posted by mc33433 View Post
I have been considering paying off my student loan in a lump sum for a while now. I'd like to hear some advice on whether it is a good idea. Here are some of the facts:

I have ~$14,000 loan remaining, down from original amount ~$20,000

The interest rate is only 3.75%.

I currently pay only $150 a month on this student loan, as it was the amount set up when I first graduated and I never changed it. My interest rate was reduced 1% after 36 months of timely payment according to original terms. My understanding is that if I adjusted my payment amount, my rate would return to 4.75%.

I make a very good salary, live comfortably, and always pay my credit card bills in full every month.

My husband and I have been discussing getting preapproved for a mortgage and other things, and I wondered whether having this debt would help or hinder us. I always thought it helped my credit to have the timely payments on the debt. Would getting rid of the debt completely be a good thing for my credit?

Any thoughts? I have a lot of cash in the bank so I consider just paying in full but I'm not sure of the cons.
If mortgage and other things that you are contemplating to finance are above 3.75%, I wouldn't pay it off.
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Old 07-19-2011, 04:09 PM
 
2,684 posts, read 3,099,398 times
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Thanks everyone! That was my general thought, since 3.75 is so low. I'm not in a rush to pay it off, but I wasn't sure if the debt would affect my mortgage approval in any negative way. I was hoping just the timely payments would help my credit.
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Old 07-19-2011, 05:28 PM
 
8,232 posts, read 11,132,901 times
Reputation: 5681
Quote:
Originally Posted by mc33433 View Post
Thanks everyone! That was my general thought, since 3.75 is so low. I'm not in a rush to pay it off, but I wasn't sure if the debt would affect my mortgage approval in any negative way. I was hoping just the timely payments would help my credit.
As long as your debt-to-income ratios are good (both front-end and bakc-end), your student loans pose no issue to getting approved for a mortage. If you're looking at a mortgage so big that a $150/mo loan payment puts you over the DTI ratio edge, I recommend looking at less expensive homes. Overall, student loans are "good" debt and increase your credit score since you are paying on an installment (similar to paying off a mortgage). Shows your manage your credit well which lenders like to see.
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Old 07-20-2011, 02:41 AM
 
111 posts, read 193,500 times
Reputation: 78
Disagree competely. Get out of debt! Even considering the value of money over time, I never understand the desire to add debt instead of paying debt..or the idea that it's better for a credit score to be paying small amounts of debt instead of having no debt.

You owe the money. Be done with it so you don't have to write that stupid check for the next 25 years or whatever. There's significant peace of mind in being master of your domain. Get outa the rat maze as early as you can!

Entirely possible my advice sucks; tons of people love debt.
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Old 07-20-2011, 06:34 AM
 
Location: Austin, TX
13,723 posts, read 3,953,576 times
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Pay it off.
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Old 07-20-2011, 06:48 AM
 
1,249 posts, read 1,055,903 times
Reputation: 1208
Pay it off and get out of debt. End the threat, something could go wrong and you'll be in a lot of pain. Get this monkey off your back.
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Old 07-20-2011, 08:23 AM
 
Location: St. Louis, MO
647 posts, read 625,916 times
Reputation: 751
Quote:
Originally Posted by Jerksticks View Post
Disagree competely. Get out of debt! Even considering the value of money over time, I never understand the desire to add debt instead of paying debt..or the idea that it's better for a credit score to be paying small amounts of debt instead of having no debt.

You owe the money. Be done with it so you don't have to write that stupid check for the next 25 years or whatever. There's significant peace of mind in being master of your domain. Get outa the rat maze as early as you can!

Entirely possible my advice sucks; tons of people love debt.
But if they are applying for a mortgage, they will still be in debt. The student loan interest (and amount) will be lower than the mortgage interest. I would think extra money should go towards a down payment (to reduce the mortgage amount) or paying off the mortgage faster.
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