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Debt ratio


LeslieR
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The balance on my student loans is about 80K at this point. My interest rate is so low (below 3%) that I have not been concentrating on making huge payments to these loans. I make slightly more than an interest-only payment on time every month and have been contributing the max to my 401K and building some savings as part of my overall financial improvement plan.

Of course, I know I need to tend to getting that loan balance down sometime during this lifetime. Now that my savings is more in my comfort zone, my plan is to start throwing ANY extra money I get (tax refunds/rebates, money from freelance work, etc.) at my student loans.

But my question is - is this high balance hurting my credit scores if all else (utilization of credit cards, making on-time payments on all accounts, etc.) is clean?

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Student loans ar econsidered a "good" debt. Same with mortgages. The very nature of these types of accounts goes hand in hand with high balances. IMHO as long as you're still paying everything on time and what not, the high balances in and of itself do not harm your score much.

I would venture to think that if you do have extra cash to pay your loans, pay off CCs and auto loans first and foremost. Build a savings account/max out your 401K...wich you have been - good!

So from a FICO standpoint it's not bad, IMHO. But from a debt standpoint, paying them down faster will reduce your total that you will pay over the life of the loan. Especially since you're only paying just over interest-only payments. (As am I, as a matter of fact :p) The more you pay over the minimum will go towards principal, which will reduce your total interest payments over the life of the loan. It's a great idea if you can do it earlier in teh loan, when the compounding of the interst "hurts" more up front.

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Student loans ar econsidered a "good" debt. Same with mortgages. The very nature of these types of accounts goes hand in hand with high balances. IMHO as long as you're still paying everything on time and what not, the high balances in and of itself do not harm your score much.

I would venture to think that if you do have extra cash to pay your loans, pay off CCs and auto loans first and foremost. Build a savings account/max out your 401K...wich you have been - good!

So from a FICO standpoint it's not bad, IMHO. But from a debt standpoint, paying them down faster will reduce your total that you will pay over the life of the loan. Especially since you're only paying just over interest-only payments. (As am I, as a matter of fact :p) The more you pay over the minimum will go towards principal, which will reduce your total interest payments over the life of the loan. It's a great idea if you can do it earlier in teh loan, when the compounding of the interst "hurts" more up front.

Right. Thanks, Amerikaner---that's exactly what I've been doing. Paid off cc debt first, then really focused on saving and upping the ante on my 401K contributions and opened a Roth. Next, I'm focusing on my car loan and trying to get that paid about a year early (and convincing myself 'I LOVE THIS CAR' so I don't feel the need to get a new one). Continue the savings plan, and THEN work on the SLs.

But I just wanted to make sure that in the interim, I wasn't doing anything counterproductive to all my other hard work to boost those scores!!

Thanks again!!

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Just chiming in and agreeing with you both. Student loans at 3%? Pay them last. Pay off high rate debt, then MAX 401k and Roth, then pay off lower interest secured debt (such as car loan), then save in taxable accounts, then if all else, pay down student loans.

Unless it is bugging you emotionally, at that low rate, I would NEVER pay more than the minimum payment. Your money is better allocated to all other places first. Pay the minimum, invest elsewhere, and let inflation turn $80k into just a "nuisance" debt 15 years from now.

Regarding our score, probably not hurting much. I owe $75k on student loans and my scores are over 700.

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Thanks for the input jq. That validates my feeling. No, I have no emotional worries about the SL balance. As long as I am making the payments due, I don't even think about it. The payoff of saving and preparing for my future is far greater than any satisfaction I'd get from making a huge dent in those loans.

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