AgentJ

Hello Everyone,

I'm new here, and this is my first post. My main questions are: Given my situation, is it wise to pay off my school loans as quickly as possible? Would dragging out the length of time it takes to pay off my school loans increase or fortify my credit ratings?

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Here's a little background info about my loans: I graduated from college in May 2007 with about $30,000 in student loans. I had to start repayment for one of the loans late last year, but for the rest of the loans, I didn't have to begin repayment until January 2008. During some months (well...more like every other month), I paid more than what was due that month, and in October 2008, I sent in a couple of huge payments. I am now down to about half of the amount of loans I started out with.

Because my loans aren't consolidated, I could have focused on paying them off one at a time, but I spread my payments around since the interest rates are about the same. Here are estimates of the current amount of my loans:

Private loan(?): ~$9,000 @ 5% interest

Fed loans (the two are tied together and my payments are split between the two balances...I don't think I can pay off each of them separately):

Stafford: ~$4,000 @ 6.8% interest
Consolidated: ~$2,000 @ 4.4% interest

I tried to roughly average out the interest for the Fed loans since they're tied together, and the interest came out to be around 5%...about the same as the other loan account.

In this economic state, I'm wary of high-risk/high-return investments, and I don't know much about them either. Therefore, if I were to invest my money now instead of paying back school loans, I'd probably just end up buying 1-year CD's. However, CD's interest rates are lower than my school loans' interest rates, so I see no point in investing in CD's instead of paying off my loans.

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My Questions
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I have read that interest paid on school loans is tax deductible. However, for every $250 I save in taxes, I'm paying $750 in interest, so I think it's still better to pay off the loans as quickly as possible. Is this the correct assumption to make? (I live with my parents and have minimal expenses every month. I have no other debts besides the school loans.)

I am signed up for electronic debit each month because I was promised a reduction of .25% in my interest rates. From my understanding of the deal, I need to make 12 consecutive payments before I can get that lower interest. Is this correct? I think I can pay off my loans in their entirety around March 2009. Does this mean I will benefit from the reduced rate for only 3 months or will I get interest fees from 2008 refunded to my account as well? If I were to pay off one of my accounts now as opposed to in January 2009, will I miss out on the interest rate reduction's benefits or does it not make a difference?

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Finally, I may want to buy a house in a couple of years. I know the current credit crisis will make it very difficult to take out mortgages in the future. Also, because I just graduated not too long ago, I don't have much of a credit to begin with.

I bought a car about a year ago. I financed it, and was only able to get a loan with a 10% interest rate since that was my first loan ever (besides my school loans). I had to buy a 6-year maintenance plan for get a reduced rate of 9%. Thinking back, the maintenanra ce plan was a bad decision; my dad and I paid off the car together in about 1/2 a year since we both hate owing money. But my point is...because we paid off the car so quickly, that loan didn't seem to have improved my credit at all although it was under my name (I'm not sure if I even saw it on my credit report after I paid it off).

Therefore, I'm wondering if stretching the repayment of my school loans across the time frame of two full years or longer will increase my credit score (the total number of on-time loan payments I made will increase). Or does it make no difference as long as I don't miss any of my school loan payments?

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Hopefully someone here can enlighten me a bit. Thank you in advance.