Sallie Mae or Credit Cards

**Slug** · 04-24-2012, 07:42 AM

First, congratulations on all you've done so far.

Second, attempt to work with Sallie Mae again now. The sooner you start the conversation, the less desperate you look and the sooner you can know for sure how those loans will play out.

Until then, I recommend attacking the highest credit card interest balance. Obviously you already know how to spend less than you make so use those funds to attack the debt.

There are also a lot of balance transfer options out there on new cards. Definitely consider this option. Paying 3% of the balance might be a small price if you can then attack other debt in the meantime.

**jpg7n16** · 04-24-2012, 09:02 AM

I'm pretty much thinking just like Slug here. High interest rate is always where your focus needs to be. But if there is a reasonable way to turn high interest rate into 0% rate for a year, that's certainly an attractive offer.

Google: 0 balance transfer

If that's not an option, then pay down the CCs as much as possible.

Every $1000 you pay down on those CCs saves you $145-169/year in interest. You only save $92.50/year on the SLs.

2 Questions though:

1) How can you afford to pay them $720/month, but say you're unable to work?
2) What balances remain on these CCs and SLs?

**bsmith404** · 04-24-2012, 10:29 AM

@Slug thanks. I thought I read it wasn�t good to take on another credit card and transfer your loans and then I read you should. I really don�t want another credit card after paying off so many. We just have one now. Our Delta American Express.

@jpg to answer your questions:

1.) My husband makes just enough. None of the wives in my husband company works. Its not like we don�t want to, we can�t. Right now with debt paid down we are saving about $900-$1200 a month. Before it was about $300 so that shows you how much debt we had. Plus our pay goes up/down depending on the euro rate so that $1200 a month can turn into $900 in a matter of one pay period. But $720 a month is like a car payment and I�m hoping when we go back to the states next year to get a van and I don�t want to pay $720 per month on a student loan debt and then a car loan. Plus $720 a month for a student loan per month is a lot.

2.) Both CC�s have a 3,000 balance so I have 6,000 in credit card debt. I have 15,000 in Sallie Mae student loan debt.

We have 12,000 in savings so I�m wondering if I should pull the 6,000 out of savings. In my eyes you never have savings if you have debt but with the economy and if something happens I need my savings.

**jpg7n16** · 04-24-2012, 11:27 AM

Originally posted by bsmith404 View Post

@Slug thanks. I thought I read it wasn�t good to take on another credit card and transfer your loans and then I read you should. I really don�t want another credit card after paying off so many. We just have one now. Our Delta American Express.

No. You have at least two CCs. You state later in your post that "both" cards have $3,000, so $6,000 total. That's two right there.

We're not advising getting another CC to USE. Just to transfer the balance and pay 0% for a year instead of 14-16%/year.

Would you rather pay 16% or 0%? If you weren't getting charged interest on your CCs, wouldn't that make it much easier to focus on your SLs?

But $720 a month is like a car payment

What??? What kind of car do you drive??

$720/month is like 2-3 car payments. Do you have a car loan too?

Plus $720 a month for a student loan per month is a lot.

No more than you've been paying. You've paid off $30k in 2 years. That's over $1,000/month. I wouldn't focus on the payment as much as the interest it's costing you.

Both CC�s have a 3,000 balance so I have 6,000 in credit card debt. I have 15,000 in Sallie Mae student loan debt.

We have 12,000 in savings so I�m wondering if I should pull the 6,000 out of savings. In my eyes you never have savings if you have debt but with the economy and if something happens I need my savings.

Given this, I would take one of two options:

1) Pay off the CCs in full today. You'll still have $6k in savings, and eliminate a costly debt. Can't go wrong there.

2) Transfer the CC balances to a 1-year 0% balance transfer option. Use some of your savings (say $5-6k) to pay off the highest rate student loans. Pay $500/month towards the CCs and attack the SLs for the rest of the 0% period with whatever you guys can muster. By the end of the period you will have no CC balance owed, and significantly less SLs. Maybe only a couple thousand. You'd be much better financially after these steps.

Option #1 is easier. Option #2 is better for you in the long-run financially.

**Slug** · 04-24-2012, 11:44 AM

Yep. What JPG said. Just because you missed CC's before, it doesn't mean you have to do the same if you explicitly treat the new card only for the balance transfer. However, if you think you'll be tempted to rack up debt again, definitely just pay off those CC's right now, and re-negotiate with Sallie Mae.

**bsmith404** · 04-24-2012, 12:42 PM

Thank you so much for your input.

@jpg sorry what I meant to say was yes we have two to pay off but we are only currently wanting to keep one which is our Delta America Express.

We drive a BMW. We were in Germany and got a really good deal on it. Its paid off now but it was at 6% and the payment was $600 a month plus we had another car with a $500 payment. So we got rid of one car and my husband takes the metro and bus now. So between two cars, one we got rid of and another paid off so we save a lot more now.

You are right. I didn�t see it that way. 1,000 a month. I do need to focus more on the interest.

Thanks so much. I will look into getting a 0% credit card with a balance transfer option. You two have been helpful.

**beequeen** · 04-27-2012, 09:19 AM

Pay off your credit card first

Your student loan interest rate is really high, my rate is around 2% for my student loan so I am in no hurry to pay it off early ( I am with Sallie Mae also)

Try to consolidate or move your student loans to get a better interest rate.

Another reason to not pay off your student loans first is to take advantage of deducting the student loan interest when you do your taxes, something that you can't do with credit cards.

**dczech09** · 04-29-2012, 09:39 AM

Originally posted by bsmith404 View Post

1.) My husband makes just enough. None of the wives in my husband company works. Its not like we don’t want to, we can’t.

I am confused by this. What do you mean you can't work? And none of the wives in your husband's company work? What kind of place is this? Some "high society" company that places restrictions on their workers. Or is it because you have kids and need to run the household.

Do you realize how fast you could clean this up if you had a job? An additional $1,000 per month would allow you to mop up this debt is no time. You can make $1,000 per month working VERY part time or even doing something from home.

I'm sorry, but you have debt, so the comment about your husband making just enough does not make sense. If he truly made enough, you wouldn't have credit card debt.

With that said, I agree with jpg...
Either use $6,000 to pay off the credit cards OR balance transfer to 0% and use $6,000 to pay down a bit of the student loans. Either way you will benefit.

Also consider doing something part-time. An extra $1,000 per month would do wonders.

To beequeen...

"Another reason to not pay off your student loans first is to take advantage of deducting the student loan interest when you do your taxes, something that you can't do with credit cards."

The student loan deduction only limits the amount of interest paid out. In order to get the deduction, you spend a lot more. Also the deduction only applies if deductions are itemized.

How about this... you pay me $10,000. Once that money clears through my bank account, I will gladly pay you $2,500. Oh? You don't like that deal? Well, the student loan deduction is basically the same deal.

The reason to pay off the student loans last would be because the interest rate on the credit cards are higher. Thus is there is a balance transer to 0%, it would be wise to tackle the student loans first as they would then be the higher rated debt. The interest rate deduction DOES NOT factor in to our decision making in this situation.

**jpg7n16** · 04-29-2012, 10:09 AM

Originally posted by dczech09 View Post

The interest rate deduction DOES NOT factor in to our decision making in this situation.

Well it actually does, but in this case it's not enough to overcome the higher rate.

The debt payoff question is always a case of "cost vs opportunity cost."

If you just focus on reducing interest costs, you'll prepay all your debts - even if they're only charging 1% interest (Dave Ramsey style). But you could easily have invested the money you used to pay off that loan and expected to make 7-10x that amount.

To use your example, say you were paying $2500 in interst on a 2% loan. And you have enough in investments that earn $10,000/year (8%). Using your same logic, would you sell your investment and stop earning $10k to stop paying your $2500?

But OPs SL interest rates are so high the deduction isn't enough to overcome them.

SL debt (assuming 25% bracket) = 9.25% - (9.25% * .25) = 6.94%
Expected return on investments = 7-11% (taxable if not in a Roth)

So would you rather take the risk and hope for 7-11% taxable returns? Or take the guaranteed tax free payoff at 6.94%?? Easy solution IMO.

The tax break factors into the equation, but for this OP - it's not enough to overcome anything.

**bsmith404** · 04-30-2012, 02:37 AM

To dczech09 first watch your tone, second the reason why none of the wives work have nothing to do with some �high society� company. We live overseas and therefore can�t get a DNI or NIE, which is what you need to work. Trust me if I could work I would because I KNOW it would pay off debt faster. I have a degree and I�ve worked all my life.

Yes he makes enough for us to be able to pay our bills, etc. I stated �just enough.� I also stated we paid off over 30,000 in credit card debt and our car is paid off. So we are putting more money towards our bills then blowing it. He didn�t make this �just enough� money before and once we go back stateside he won�t be making this much. It�s the benefit of living overseas. You make more while you are there but the spouse cannot work. The host country will not allow it.

Have you ever lived overseas? If not then you have no idea what you are talking about. I can�t just get a part time gig.

**DebtFree&Broke** · 04-30-2012, 03:36 AM

Originally posted by bsmith404 View Post

1.) My husband makes just enough. None of the wives in my husband company works. Its not like we don�t want to, we can�t. Right now with debt paid down we are saving about $900-$1200 a month. Before it was about $300 so that shows you how much debt we had. Plus our pay goes up/down depending on the euro rate so that $1200 a month can turn into $900 in a matter of one pay period. But $720 a month is like a car payment and I�m hoping when we go back to the states next year to get a van and I don�t want to pay $720 per month on a student loan debt and then a car loan. Plus $720 a month for a student loan per month is a lot.

2.) Both CC�s have a 3,000 balance so I have 6,000 in credit card debt. I have 15,000 in Sallie Mae student loan debt.

We have 12,000 in savings so I�m wondering if I should pull the 6,000 out of savings. In my eyes you never have savings if you have debt but with the economy and if something happens I need my savings.

Yes, take $6,000 out of savings to pay off your cards. Then, stop adding any money to savings, instead take the total amount you used to pay on CC and cars, plus the $300 a month savings, and add that to your student loan payment. Every spare penny you find should go to getting rid of that student loan debt.

Sallie Mae or Credit Cards