57 People Helped
Member Since: June 2014
My last 2 student loan accounts totaled up to be around $5,000 while my credit scores averaged at 754. I recently wiped both accounts off in about 6 months, once I was stable with my new job. With no other debts and no new loans, along with maintaining my credit card utilization at only 1% (only one percent), my score got to 778 since last month. Took me a total of over 10 years to wipe out my $22,000 total principal from 5 different accounts.
I'm not advising anything. Just my personal experience. I'd rather have the fulfillment knowing that I don't owe anybody any dime rather than drag my monthly payments and risk a late payment or have the company take more than what I borrowed from interest each month.
If you have money to wipe it out, do it as fast as you can? Why let them earn interest out of your principal? Tax break won't make a difference at all on your 1098-T, but the feeling of owing money and dragging on from month to month is not worth it.
iHateDebts's response was:
Congratulations on the windfall!
I agree with having the expenses set aside for emergency. Why take it from your inheritance or trust? Don't you have an emergency on your own already? The reason I ask is that why not invest the full amount rather than taking a little from it and pay taxes, since it counts as your income. But if you don't have any emergency fund set aside at all, then it is good to set about 3-6 months worth of expenses. If you have a decent income with lots of liabilities (kids, college, debt, mortgage, etc..) then you might want to put aside more. Also, if your household income is unstable then you would need MORE months since it is unpredictable. In general, the less stable your income is, the more you need to set aside.
I would not invest in CD's at all due to the very low mature rate and short mature time as indicated. If you want to invest the money, why would you keep it in a short term plan? You didn't mention your age or retirement goal, so I cannot be more specific. Might as well let it grow and think about long term. Therefore, CD's wouldn't make sense.
Regarding annuities, I hope you understand the concept of it. But I don't recommend annuities since you are giving the insurance company a big chunk of your money ahead, then draw a certain set amount (in most cases) for the rest of your life during retirement. Worse is that it is less if you have it in set time frame like you mentioned. Think about it. You give them a large amount at first then only to gamble with time to collect minimal set amounts back monthly. Would you live long enough to get all your money back? Annuities are usually recommended due to the advantages for the ADVISORS, not the fund owners, because of high commission for them! They are in favor of the agent more than the fund holder.
If I had that money, I would simply put the full amount into mutual funds and not cash out any. Taxes would reduce what you can get in your hand, so it's not that great of an incentive. Then I'll contribute a set amount into it monthly as well to help it grow, if you don't have some type of investment account already. Once it's invested, it's not gonna be touched until the retirement age. But if you have some heavy debt load, then I would recommend using your own money and as little as possible from your inheritance to wipe out your debt as soon as possible. Debt corrodes your ability to build wealth.
I don't know your overal financial situation. But if you are at a decent position to try to invest, then I would agree to ROTH IRA (you didn't mention about 401K). To my perception, it's better to pay tax upfront now and invest and have the money grow. Later on while collecting your retirement, you don't have to pay a single penny. So whatever you collect is 100% yours without intervention from Uncle Sam.
I am paying 25% tax bracket with my income. Single. No dependents. Minimal lifestyle. I invest in a ROTH 457 Plan (goverment plan with no government contribution). AFTER BEING TAXED, I still put in a total of $1,000 a month and allocate my money into Index Funds in both International and US index groups. Don't know how long I can maintain that $1,000 contribution, but I'm sure I don't have to worry about paying taxes as I collect in my golden years.
I went with INDEX FUNDS because of the very low adminstrative fees (maintenance fees or whatever fees they name it). Over the course of your investment, fees will take up a chunk of your total, that would reduce your principal. There's no guarantee how the market would fluctuate, although it beats inflation and savings interest at a bank. But why not go the route with the least fees and no taxation during retirement through Roth investment? It doesn't make sense to me mathematically. Fees + taxes = less money in your wallet during retirement.
I had 5 separate accounts from 2003 through 2008. Grand total combined was: $22,000 (principals only)
4 from Sallie Mae (now Navient) and 1 from ACS. The highest APR was 6.2% and lowest 2.3% during repayment.
A) I NEVER PAID MINIMUM. Always paid extra to each account.
B) I ALWAYS KEPT PAYMENTS ON TIME.
C) I PAID EXTRA IF I MADE EXTRA MONEY OR HAVE LEFTOVER. Loan account with HIGHEST APR got that extra payment.
D) I CONCENTRATED MY MONEY INTO THE LOWEST LOAN (not necessary the lowest APR). Better to wipe out 1 account completely and then move on to the next lowest account rather than flirting with all my 5 accounts and let APR of all 5 continue to accumulate more debt as they remain active.
E) AGAIN, ANY EXTRA MONEY WOULD BE PUSHED INTO AN ACCOUNT AS AN EXTRA PAYMENT.
I struggled to pay all 5 accounts in a little over 10 years. It robbed me of my financial freedom but it was worth the investment for my college degree. Be disciplined and persistent with your goal. Don't put more burden on yourself by racking up more debt elsewhere. If it bothers you that those loans aren't paid off for over 13 years already, then the incentive should be more intense starting now.
What loan are we talking about? What's the interest rate? How long is the payment plan?
How much is the loan you're talking about? What is your take-home pay?
What other financial priorities do you have, besides this loan?
Why are you thinking of refinancing?
It is always best NEVER to borrow money, except for a house or business, as majority of people don't have the large amount of cash to buy it at once. The borrower is the slave to the lender. Once you're in debt, it is BEST and EASIEST in the long run to pay it off as quickly as you can. The longer you have a loan, the more money you'll have to give to the lender in the end because of interest. Why let the lender change the original price of an item you purchased initially? Most of the time, that item will depreciate and your loan amount will appreciate? That doesn't make sense! If you walk into Best Buy to buy a laptop which is $1500 out-the-door NOW but told that you'll have to pay $1700 out-the-door later, which would you choose? That's the concept of borrowing. You pay in the present but for an item of the past.
Save money for the item. Who knows? By the time you have saved enough, another newer, better item might be up for purchase. You're not getting into debt and not paying for something which is past its prime yet still have payments on it. Stay away from debt as long as you can. That's the best way to get ahead and build wealth.
That's fairly easy to answer. I assume you borrowed to buy your house and not pay for it with cash in the full amount.
Before you purchased your house, you were at a consistent score with a little fluctuation here and there. Once you have incurred debt by borrowing, your credit history registers a new debt and pushes your score down because your debt-to-credit ratio is way higher than before. So that's why you see a drop. As you make payment, your debt gets lower and eventually will reduce your ratio thereby boosting your score over time.
If they have already been officially opened and are in your credit history from now on, I would keep them. By now you should also see some credit inquiries in your credit history too?
This is about debt-to-credit ratio. Both cards' limits add up to a certain amount. This amount becomes an "extra cushion" to your debt-to-credit ratio, provided that you do continue to use them and pay them all off. Let's say you used to have a total limit of $10k before these two cards, and you spend a total of $1k. Your debt-to-credit ratio is 10%. With these two new cards, your total limit now is $10k + (let's say $2k) = $12k. So if you still spend only $1k like usual, then your debt-to-credit ratio is reduced from 10% to about 8.3%. In the world of credit scores and history, that is good and should improve your credit score in the near future.
But if you use way more than before and keep a balance, everything I said earlier is negated. hahahahah...Your score would fluctuate and you might even see lower scores due to higher debt-to-credit ratio. My rule of thumb is to use less than 25% of my combined limits and still pay all in full at the end of the month. I'm still faithful with my 1 card since college and I'm at $38,000 limit just on that card. It started out with only $1300 but increased to that higher limit now. I still use about $500 each month and pay it off completely. It's been almost 10 years since I opened it. I don't plan to open up any more accounts. I'll just ask the company to raise it every two years.
Don't close any accounts, each extra amount is beneficial to your debt-to-credit ratio and thus would help increase your credit score. But only beneficial if you don't spend any higher than what you usually have or go over 25% taken into account of your new total limit.
for YOU? Either option is legal for your inquiry. The bottom line is which one is more comfortable for you? It also might depend on the amount of the debt too. How much left on the car and how much left on the credit cards?
If I were you, I would prioritize paying the debt with the highest interest first, while keeping all other payments current. It's just mathematics for me as a higher interest rate will cause you to pay more money in the long run. Again, I don't know your figures. Another option is to pay the lowest debt first, regardless of the interest rate, to give you a psychological boost to continue attacking the next lowest debt.
Be careful, those who move debt from one card to another tend to be "lazy" with debt because they psychologically fool themselves that they have done something to reduce debt. Realistically, they just literally transfer and not do a thing to reduce the debt. But that 0% transfer scheme is so attractive! So don't put yourself into that mindset and be complacent. Debt is debt. Better to get rid of it as soon as possible than to move it around and risk incurring more debt then pushing your situation to move again and again.
But the question cannot be answered without your specific figures.
It's better to keep the card. If there are annual fees then see if they can waive it? Your card might have a decent limit given the time that you have the account? If it is closed, I think the debt-to-credit ratio may take a hit and you will see a drop in your score. Use it once in a while for gas then pay it off to keep it active.
It's a curse with credit -- once you get into it you might as well ride it or else it'll hurt your score. Better not to have another card, but once one gets another card with a decent limit then it's usally better for the credit history to keep it since now it has boosted the overall limit thus lowering the utilization or debt-to-credit ratio.
If I were you, I would keep it and charge it for the smallest purchase then pay it off completely to show usage. My oldest card is 10 years, and it has $38,000 limit on it.
What's your overall situation with your current 3 loans?
How much does each loan have? What is the respective interest rates?
The only option I could think of is to use a credit union because their rates tend to be lower than most, provided that you are in decent credit standing. Other than that, I think it's more trouble to get into a personal loan company than to try to clear out those 3 loans individually. It's just passing a loan to another loan via a different lender. You're not really clearing off debt but just moving them around. In the process, there are fees and potential damage to your credit history.
Loan companies are in business to make money off of you, especially from those who are desperate for money. See if you can get another means to borrow then pay them off. Friends, family, coworkers?