Creative way to pay off loan

Discussion in 'Credit Talk' started by CAmove, Oct 17, 2001.

  1. CAmove

    CAmove Active Member

    Ok, I have a dilemma. I just got my federal student loan package yesterday and I'm allowed to borrow subsidized and unsubsidized loans. The subsidized amount will cover most of my tuition, fees & books. I will only have to borrow $1,000 in unsubsidized loans.

    I currently have two loans from undergrad. One of them has been paid down to just $3,000. I'm considering borrowing an additional $3,000 in unsubsized loan money to pay this other loan off:

    a) to show a "paid" installment loan on my credit report and,

    b) to just pay the darn thing off already, so I only have two loans to consolidate, three years down the road, after the masters program is over.

    If I pay the interest while I'm in school on a $4,000 unsubsidized loan it will cost me around $20.00/month (5% interest rate). I know I'll end up paying more for this loan in the long run. I need opinions on whether it seems worth it in order to show a "paid" installment loan on my credit report.

    That would put me at: 2 paid chargeoffs I will continue to dispute, a deferred loan, a paid loan, and hopefully by next month cap 1 and hsbc secured cards. Oh, and maybe a fcnb card!

    Any advice? I'm new to all of this, so please be gentle. :=)
  2. CAmove

    CAmove Active Member

    Just bumping the message back up again...
  3. KHM

    KHM Well-Known Member

    Personally *I* wouldn't payoff any school loan before necessary. My experience is they are the easiest creditors to deal with, you say jump they say how high. I have a student loan that I only owe $700 and gave a lot of thought to paying it off early but why bother. Pay something with higher interest. I know its good to have CC on your report for 2 years or more, maybe someone here knows if it works the same for student loans. Hope maybe this helped.
  4. CAmove

    CAmove Active Member

    To clarify: the loan I would be paying off originated in 1993! It is OLD, but almost paid off...just $3,000 to go. My other loan is also from around that time, but much higher.
  5. sl1029

    sl1029 Well-Known Member

    I didn't get any bump in my score from paying off one student loan - I still had 3 that I was paying off. This was on a report w/ no derogs EXCEPT one 5 y.o. paid judgment.

    I think you have to weigh whether having 1 paid student loan (they aren't always treated as strictly installment loans) will cancel out the negative of replacing a long standing account, with low debt/limit ratio with a new account with a very high debt/limit ratio.
  6. Marie

    Marie Well-Known Member

    IF your old loan is subsidized and you are wanting to repay it with unsubsidized I understand the emotions but let's look at this logically.

    It sound like they're original 93 loans so I know from experience your interest rate is around 8% or so. If it's also subsidized then you should consolidate the loan into a new loan at 5.99, keep it subsidized, and enjoy the deferment during school. That will also take care of the emotions of "paying off the old loan".

    As for a score bump... let's think about this.

    Student loans are an oddity. but let's look at this in traditional Installment fashion.

    Old (aged) loans give you a positive bump in score over 24 and 36 mos. So this one is giving you age. but you won't gain any more points from it because it's already hit 36 mos.

    New tradelines cost you points for the first 12 mos traditionally. so,

    If you're going to bother getting a new loan, better that they're subsidized than not. If you need the unsubsidized money then take it. If you go to the Direct Loan Center you can have all your loans there and then consolidate (meaning you'll have less lines to worry about and less of a negative hit for multiple new tradelines).

    The better score bumps are in paying off REVOLVING debt over installment debt. Installment debt hurts significantly less.

    So if you have any credit card debt, take out the extra unsubsidized money and pay off the credit cards... :)

    The other guys are right... I also didn't get much of a positive hit for paying off installment loans but I did get a HUGE hit from paying off revolving debt...

    So do the smart financial deal and consolidate.
  7. Marie

    Marie Well-Known Member

  8. CAmove

    CAmove Active Member

    Thanks A LOT! I will consolidate. Don't have any revolving debt at the moment.

    New accounts drag down scores on a credit report for a full year? That seems awfully long. How many points are we talking, approximately, for each new account? I was hoping to add some new credit, as I currently have none and want to rebuild.
  9. Marie

    Marie Well-Known Member

    If I knew Exactly... I could sell it to all of you and retire :)

    The consensus is this: have a time of the year (or 2 times a year) that you apply for accounts and do it in 1 hit...

    Also, consolidations take a while to process (2-3 mos) and then to report...

    so you can apply for consolidation now, while you're working on your credit... then you can get some new credit if you want... and the hits will all be about the same time.

    You recover from inquiries in 90+ days or so (points) but some internal scoring systems don't want more than x inquiries in x time...

    So, I apply for stuff in January... my new accounts have aged for about a year and I look like I'm not constantly shopping for credit.

    The subprimes aren't as picky... but you have a good selection of stuff right now... what are you thinking of applying for now?
  10. Marie

    Marie Well-Known Member

    You know, I just reread... you don't have bad credit do you? You just have No credit... and you're a student.

    Well, this is easy. Look around campus. Everybody wants you.


    stick with the primes and have fun.

    Amex is pickier about inquiries so if you want it, do it first... then Chase, then Citibank.

    You can do student applications and as long as you have NO derogs you'll get them even with no job...
  11. supershawn

    supershawn Well-Known Member

    Also, Amex has a 'student' card ...that's how I started out with them.

    I consolidated my student loans at , used their 'smartloan' , no inquiries on any CR from the process. Only took 2 weeks to complete, all through the mail.

    just more food for thought...

    Good luck!

  12. CAmove

    CAmove Active Member

    Yes, I DO have bad credit. I have two PAID charge offs that I'm currently disputing. However, my two student loans are current. I want to get more cards, but I'll be renting an apt in Los Angeles in December, so I'm trying to raise my score as much as possible between now and then!

    I's confusing. I even have trouble keeping up with it all.

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