To pay off or not...

[blizzard_babe]

Our student loans, that is.

We technically have enough in savings right now to pay off our remaining student loans (DH's actually; we paid mine off last year) and still have a "safety net" in savings. I know that it is generally financially a good decision to pay of debt whenever possible, but what about the credit-building aspect? DH has had his loans in repayment, never a late payment, since 2001 or 2002, I forget which. Mine were in repayment without a late payment from 2004 until last year when we paid them off.

We each have a credit card that we rarely use, but other than that, no other open lines of credit. We don't own a car or a home because of where we live (though we're thinking of buying a car to keep in the Lower 48; long story).

My gut instinct tells me it's probably better to pay off the loans, but I really don't understand how not having any open lines of credit would affect our credit reports.

[mightymoo]

In this economic times, and assuming they are relatively low interest (like 6% or less I'd say) I wouldn't pay them off unless I could keep a very large cushion of savings (8 months of expenses). Just because it wouldn't help your credit at all to have the loan paid off, but then not be able to pay your other bills and things because of some other hardship.

Other than that, I don't think there would be a good reason to keep it outstanding unless you have really bad credit otherwise - sometimes folks keep open a loan because they literally have no other way of building theri good credit back up again (no one will give them another loan, a credit card, etc). It doesn't sound like that is the case with you, however, so I would pay it off if you feel comfortable with the cushion of savings you have.

[painefaria]

I think that I would pay them off and use the credit card occasionally and let the balance ride (for the pay it over time aspect). All of the money that you were paying to the loan can then go to savings to "pay back" the amount.

[Sailor]

I'd pay them off.

I worked so hard for years to pay off my debts. Student loan, and medical. It was so much work. ALL I did was work and pay money into them. Looking back, it was a fairly miserable time of my life.

However, I can't even tell you how good it feels to debt free. Every single moment of those years that I spent working and struggling was SO worth it. I will NEVER EVER go into debt again after that experience.

My credit was really bad anyway, as my medical bills had gone into collections at the time. But, you know what - right after I paid everything off, a few months later, I got an offer for a credit card. I'm using that to build up my credit. I, literally, buy groceries on it, and then pay it that same day online. I'm that paranoid, lol.

I think beind debt free is the BEST thing in the world. If you can pay this all, and still have emergency savings left - I'd do it. There's nothing worse than owing money, IMO.

Besides, after you pay this off, you can take the money that went into monthly payments and just put that into savings. In a years time you could have lots of savings.

[blizzard_babe]

We'd still have what I consider to be an acceptable cushion of savings (EVENTUALLY this will be a home down-payment, but until then it's just plain savings), and I'm guaranteed a job through next school year (I'm a public school teacher) at the very least. Part of the reason we're remaining out in the Bush is the current state of the economy; here, we have a guaranteed layoff-proof (or as close as you can get) income.

I suppose we can start using the credit cards for groceries, then paying them off promptly. Neither of us has really bad credit, so we're not trying to play catch-up, just trying to build.

[Ola_]

What is your current credit rating? If it's low, do you need it for anything in the near future?

How much would you have in savings after paying off the loan? I think there's regular stuff that builds up your rating like paying bills on time and stuff, right? I wouldn't pay interest on something I don't need to just to build up my credit rating, unless I was really desperate.

[blizzard_babe]

Well, I don't want to talk numbers (I'm weird about talking about money), but our credit score is fine (not the greatest it possibly could be, but good enough) and the amount we would have in savings would be enough for us to live on for a year; longer if we made more frugal choices. Since we're not desperate to up our score, I'm thinking that paying them off is the way to go.

DH and I still need to discuss it, however.

[mightymoo]

Remember, your score will go up if you keep your nose clean and pay everything on time. Having the loan only helps your score increase in that it IS positive credit history, you'd be fine without it too. The only situation I think it would be necessary is if it was literally the only credit you had. My brother was in that scenario long ago - his credit was in the toilet, no one would give him anything but he still had a student loan - He couldn't pay it off, so it wasn't an option anyway, but he wouldn't have, because it was the only thing helping his credit score, since no one would give him any other type of credit. In your case, I don't think it matter, sounds like you've got your bases covered, why pay the interest? Your savings probably isn't earning a ton right now anyway as interest rates are pretty low.

[hopefulfaith]

I paid them off last February with our tax return just because I could. It was worth the peace of mind to have one more thing checked off our list. I always feel like debt is just hanging over my head whenever we accrue it, and it is worth it to me to pay it off. I then used the extra $$ I wasn't paying toward the loan to build more savings, etc., which I feel everyone needs. Just my .02!

[Sarah8Jane]

I guess the only caution I would add is try to not let too much time lapse between paying off the loan and buying the house (or getting another bit of credit).

MIL paid off DH's only student loan his freshman year of college and the loan fell off his report (10 years). Now the only credit history we have are our 5 year old credit cards. Hopefully, you'll be getting a house or car within 10 years

[Sailor]

In your situation, I'd definitely pay them off. You certainly have enough to do it safely judging from your posts.

I know there are many people who differ on this, but sometimes the credit score is not that important depending on how you live your life. My partner and I don't buy anything on a loan. If we need a car, we pay cash - seriously. We just save MOST of our income, so that we have enough for the big purchases. I'm sure if we really buckled down, in 10 years we could buy a house (not in our area, though, but in another part) with cash. As it is, we're not interested in being homeowners - we're more on the lookout for a sailboat to live in.

So, for us, though I'm building my credit score and my partner's is phenomenal - it's not something we're going to be using. It's really a back up, emergency thing for us.

You just have to evaluate how important a credit score is in your life. If you're not planning on buying a house soon, you could very easily build your credit score via credit cards, but it's VERY important to pay them off every month so you don't get caught in the debt trap there.

[phathui5]

If you can do it and still have six months of expenses sitting in savings, I would do it.

[Emmeline II]

I'd pay off the loan. You could put a monthly bill
(like cable) on the cc and set up a bill pay to pay the cc.

[velochic]

I'd pay them off, especially since you say you'll still have a cushion. I think that we're going to see a period of deflation starting this year, and it is not good to have debt during deflationary periods. The amount that you are paying toward the loans... make sure you do not start spending it on anything else... save it.

[laohaire]

I see no benefit whatsoever in NOT paying them off. I you need an open line of credit you can do it without paying interest and committing a large amount of money to it. Paying off the debt will only make you more secure financially, freeing your monthly payment to more savings (including IRA or 401(k) if you like).

[llamalluv]

A student loan is not a credit line, it is an installment loan. So, it does nothing to show that you handle a LOC well.