Accumulating student loan interest vs using money to pay down credit card

arj14 · January 2014

Hi ladies,

In my last thread I had mentioned that I was waiting on my IBR plan to come through for my Federal student loans, and it finally did. Each payment is less than the interest accrued, however.

My question is: would you let interest accrue on those student loans and use that extra money to pay off more of a higher interest (15.99%) credit card each month? I could afford to at least keep up with the interest on the loans, but then I would not be able to put down any extra money on the credit card. Monthly payment for the credit card is about $63, and I've been putting down around $230 a month. If I let the interest accrue on my student loans, I could make that monthly payment be at least $330 fairly easily. Current balance on the credit card will be $2000 after the rest of this month's payment goes through.

brij2006 · January 2014

Is there a minimum payment each month that needs to be made on your student loans?

arj14 · January 2014

Yes, the amounts are $3.25, $14, $13.40, $27.50. They don't cover all of one month's interest.

ETA: To make sure the interest is covered it would be about $170 between the four of them.

Xstatic3333 · January 2014

Personally, what I would do is pay down the CC first. At that rate it should go pretty quickly, especially if you apply any windfalls to it as well. Once it's gone, start throwing the full $330 at your student loans, even if you're still in the IBR program.

Now, I'm pretty sure interest doesn't captialize while you're on IBR (but it will if and when you switch plans). I also know that you have to eventually pay taxes on any principal that IBR eventually forgives, but I'm unsure if this applies to non-capitalized interest. Do you think you'll be on IBR for the life of your loans, or switch to a standard plan once you get a higher paying job?

RenoisPrettierThanYou · January 2014

Can you consolidate your CC debit and transfer it to a 0% APR?

VadersValkyrie · January 2014

I'd pay off the credit card first. Once you get that under control, you can start dealing with the student loans. Remember, the student loan interest is going to be tax deductible, so you want to keep that around for as long as possible.

arj14 · January 2014

Xstatic3333 said:

Personally, what I would do is pay down the CC first. At that rate it should go pretty quickly, especially if you apply any windfalls to it as well. Once it's gone, start throwing the full $330 at your student loans, even if you're still in the IBR program. Now, I'm pretty sure interest doesn't captialize while you're on IBR (but it will if and when you switch plans). I also know that you have to eventually pay taxes on any principal that IBR eventually forgives, but I'm unsure if this applies to non-capitalized interest. Do you think you'll be on IBR for the life of your loans, or switch to a standard plan once you get a higher paying job?

(Sorry, stuck in the box)

At least with my federal loan servicer, you have to reapply for IBR every year, so I'd definitely be on a standardized plan if / when I get a higher paying job.

Xstatic3333 · January 2014

Gotcha! Yes, then I'd pay the CC and then snowball into the loans.

arj14 · January 2014

RenoisPrettierThanYou said:

Can you consolidate your CC debit and transfer it to a 0% APR?

I admit, I have no idea how to even start doing this... would it be worth it at this point?

I do also have one other credit card with a a balance of about $850, interest rate of 13.15%. That would be my next target, followed by my variable interest student loans, then my federal fixed student loans.

brij2006 · January 2014

I would pay the minimums on the IBR student loans, and apply your maximum amount to the smallest credit card first ($850 one). Then I would focus on the $2k one, your variable rate SLs, and lastly the fixed rate SL's.

Honestly, I would probably look into Dave Ramsey's Total Money Makeover and follow his plan to a T. Budget each month down to $0, and plug away at the loans. Snowballing the payments from smallest to largest.

As far as transfering the balance to a 0% CC. It probably wouldn't be worth it. Most cards have a charge that is a % of the amount you are transfering. It probably wouldn't outweigh the small amount you would save in interest.

hoffse · January 2014

I would also do credit cards first and then move to student loans.

Wulfgar · January 2014

I agree with others, tackle the $850 first since you should be able to pay that off in 3 to 4 months that will free up what you were throwing at it to tackle your 2k credit card. Then tackle you variable interest rate student loans.

Accumulating student loan interest vs using money to pay down credit card

Re: Accumulating student loan interest vs using money to pay down credit card

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