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Posted in Student Loans
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Question By
Xotas

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Is it a good time to pay off balances in collections?
I am looking to acquire a student loan to continue my education, and have been stonewalled since I have poor credit. I have the capability to pay off my outstanding balances right now, but I fear that given my financial situation I might need that money to make it through the semester. Is it advisable to pay off the balances so I can possibly have no-so-bad credit when I go to apply for these loans in the coming semesters, or hold onto it? Note: As a first step, I am also applying for a basic, secured credit card to help build history also.

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Since you wrote "balances" I am assuming you have more than one. Why not pay off as much as you can, while still saving some for expenses during the semester? If you feel like you will need some extra money, make sure you have it, but also do what you can to increase your credit score. 

Have you ever heard of debt stacking?

To implement debt stacking, line up your debt according to what has the highest interest rate. Pay the minimum amount on everything, then any extra money you have goes to that first account with the highest interest rate. As soon as you pay that off, add what you were paying per month toward that account and shift it to the next account.

Here's an article about it. It also suggests "debt snowballing" which suggests lining up your accounts by balances instead of interest. I still suggest debt stacking though, as you will pay less interest in the long run.  

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katmac92

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http://budgeting.about.com/od/Debt/a/Debt-Snowball-Vs-Debt-Stacking.htm

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