Defer or not? (credit card, loan, payments, financing)

[Mike From NIU]

Originally Posted by ferrarisnowday

I do think I got taken a bit on the interest rate, but I justified it by the 2,000 dollars below value I bought it at. It was just the situation I was in - I had to get a car and they were the only used place that would finance me one. It has been reliable so far and only has 38,000 miles so it should last for a while.

<snip>

It can definitely be easy to get in over your head. I made it through 4 years of college without getting a credit card and hope to continue that way.

Well, first of all, congrats on graduation, job, etc. However, I do want to point out to you that the second paragraph may be responsible for the first. While I know many people feel otherwise, credit cards are not evil. They can be a useful tool to manage cash flow, if you pay them off in full each month (and it sounds like you are that type of person). More importantly, revolving credit lines are a significant part of your credit history.

Responsible college students should get one before they graduate (even if only in their senior year). Why? To avoid the situation you're now in. Ironically, you will have a hard time getting any credit card now, when you finally have income (as opposed to loans) that can pay off the cards. Credit card companies worry about relatively empty credit files when you're in your 20s and not in school (my brother found that out the hard way). If your school has an alumni association credit card, I would consider applying for that, if there is no annual fee. They might be less hesitant than other credit cards to open an account for an alumnus/a with a thin file.

You can't change what you did or didn't do in college, but now you are paying much higher interest on a car loan than you should be. It may not be fair, but look at it from perspective of the bank that made the car loan- it has absolutely no data on whether you are the type of person who pays off your loans or not. Would you loan someone money if that was the case?

I applaud your plan to refinance in a year or so, and second other people's suggestions to use a credit union, if you're eligible to join one. Sometimes their loans rates are much lower than the rest of the market-place. Good luck!

[drjones96]

^Good on you for going through school without a CC!

But having a CC and paying the balance off monthly could help you establish a good credit history. I hate CC companies but this is possibly one area they can help. You just have to be disciplined. Like maybe just buy your gas on the card and pay that off monthly.

I guess the deal with the car loan is that the credit is so tight right now that it's difficult for first time buyers with no credit history to get one? Last time I financed a car was about 3 years ago....I wonder what kind of rate I could get these days....hmmmm

So you have a Job.... Why defer? Are you just up against a lot of expenses at the moment? Having trouble getting started?

[ferrarisnowday]

Originally Posted by drjones96

So you have a Job.... Why defer? Are you just up against a lot of expenses at the moment? Having trouble getting started?

For example, all the minimum payments on my student loans are going to be like 350 a month I think. I can afford this without resorting to my ramen days in college (free burrito credit card offers were the hardest to resist! ) But I wonder if it would be better to defer the perkins and stafford, and pay the same 350 entirely towards the Sallie Mae or Auto loan, since they are at higher interest rates. If it looks bad on my credit at all then it isn't something I want to do, but if it can knock a few months or even a year off of my overall repayment length then it would be worth the hassle (of the paperwork to defer, not the hassle of bad credit).


Actually I was kicking myself for not having a credit card throughout school when I kept getting denied for the car loans. But now that I am making car and student loan payments, will that build up a good credit history even without a card? My score when I was getting denied was 692, they always cited "lack of adequate credit history" as the reason. Maybe it is lower now with the Auto debt added, or maybe it is higher because I've been making on time payments, I don't know. I'll have a search for any "do I need a credit card for good credit" type threads.

I hadn't though of an alumni credit card, if I don't have to pay alumni association fees I could be talked into using it as a gas or grocery card like Mike suggested above. It would be a good way to track how much I spend on gas and groceries, too.

At the same time, though. A lot of my friends are in 10,000 or more in credit card debt just from college / post high school years. I'll take a high interest auto loan over that any day.

[drjones96]

Originally Posted by ferrarisnowday

But now that I am making car and student loan payments, will that build up a good credit history even without a card?

Yeah you're right about that. If you continue to make your payments on time on all your debts it will help build your credit history.

Having open accounts in good standing for a prolonged period of time always looks good and helps your score.

Another thing they consider is your Debt to Income ratio. You could have a great paying job but have a difficult time financing something even with a good credit history and credit score if it would mean after the fact that your ratios would be way out of whack.

They also look at how long you've had your job. (how stable are you?) Given that you are fresh out of school and haven't had your job for very long they aren't really confident in you yet. Companies fire new people all the time....it happens...and banks know that.

[Briolat21]

I guess that's where I was confused - you say you want to pay them off 'faster', yet you temporarily don't want to pay anything on two of the loans - i.e. get a deferment.

If you're eligible for graduated repayment, you could lower the payment on those loans (putting the extra towards the loans you want to pay off sooner) - then putting extra on the graduated loans when the other two (car and sallie mae) are paid off.

However, as I stated before, non-school deferrments - I thought you could only get that once. So, like a bankruptcy, I would save it for a truly dire situation. In fact, often to actually get a deferrment you must prove a true economic hardship. "I want to pay off my car first" will not qualify.

If you are not actually going to get a deferrment but simply let your payments lapse - that is a bad idea. They (the gov't) will come after you and sieze your tax refund - and your credit will be trashed.

So - I think paying off the high interest loans first is a great idea, but go about it in a way that leaves you the most options.

[drjones96]

I guess I agree with what Briolat is saying here. If you CAN pay then you probably should. There could come a time when you are unemployed and you CAN'T pay. That's likely the time I'd elect to defer.

Oh this reminds me. My wife was telling me something the other day about someone she is aquainted with that has huge student loans. She was saying that as long as they attend school they don't have to make payments. So they are perpetually taking college courses so they don't have to. Comedy.

[Mike From NIU]

Originally Posted by drjones96

I guess I agree with what Briolat is saying here. If you CAN pay then you probably should. There could come a time when you are unemployed and you CAN'T pay. That's likely the time I'd elect to defer.

Oh this reminds me. My wife was telling me something the other day about someone she is aquainted with that has huge student loans. She was saying that as long as they attend school they don't have to make payments. So they are perpetually taking college courses so they don't have to. Comedy.

Well, if they are federal student loans, then death will discharge the loans (ie, won't have to be paid by their estate). If they are private loans, though, the huge ca-ching is the sound you hear of interest piling up that either these people or their estate will have to pay.

[ferrarisnowday]

I had not realized you only get one deferral, and now that you point it out I suppose I woulde be taking advantage of the deferral since "I want to pay off other loans faster" isn't a true hardship like you said.

So going on graduated payments will not affect my credit?

[drjones96]

I wouldn't think so. It would only show up on a credit report as: "Account in Good standing, Paid or paying as agreed"

[Briolat21]

You get unlimited "still in school deferrals" - but I believe you only get one "hardship" deferral (job loss, major medical bills, etc..).

So I'd save that. As far as I know graduated repayments will not effect or even show up on your credit score. They don't care what agreement you make to make payments, just that the payments are made and the account is in good standing.