How do I prioritize my credit card and private/public student loan debt?
May 3, 2013 2:11 PM   Subscribe

I need some help prioritizing the repayment of my debt, which consists of 0% APR credit card debt and a mix of private and government student loans.

I know - you are not a financial adviser, you are not my financial adviser, this is not specific financial advice.

However, I would like some thoughts on my situation. I graduated from college in 2011 with a bachelors degree and make less than $50k/year. I currently have:

-About $8k in credit card debt on two cards, both at 0% APR
-About $60k in Stafford loan debt at 6.25% APR, currently on income-based repayment plan
-About $40k in private student loan debt, multiple loans averaging 4.5% APR, currently in repayment

At present I am paying:

-The minimum payment on the credit cards, which all goes to principal
-Nothing on the Stafford loans, since my income for previous years was so low that my required payment on the IBR plan was $0
-Somewhat more than minimum on the smallest of my remaining private student loans, and the minimum on the others

Additional info:

-I can likely continue to move the credit card debt around to other 0% cards when the time comes, though the fee for doing so is generally between 1-3% of the balance (no-fee balance transfers have become rare)
-I now work full-time and will likely have to begin paying on my Stafford loans next year, but I cannot afford the standard repayment plans and I am unlikely to ever get these loans paid off
-Under the IBR, the remaining balance on the Stafford loans is forgiven after 25 years, though there are tax considerations

I'm operating under the assumption that the Stafford loans are essentially a lost cause, so at this point my main concern is whether to focus more on the credit cards or the private student loans. And with the credit cards at 0%, it makes sense to me to put whatever extra amount I can toward the private loans.

With all this in mind, is there anything I should consider doing differently?
posted by iamisaid to Work & Money (9 answers total) 3 users marked this as a favorite
Debt Snowball.

Organize your debts smallest to largest. Any extra money goes to paying the smallest debt, then when that one is paid off, use the money from those payments towards the next smallest debt.

Lather, rince, repeat until you are debt free.
posted by Ruthless Bunny at 2:26 PM on May 3, 2013 [4 favorites]

Can you give us any info about your income/future income prospects so we can advise better?
posted by chaiminda at 2:40 PM on May 3, 2013

As in, are you living in an expensive area of the country? Is there anything else in your budget you might be able to cut down on? Strictly looking at the numbers, I would say you should be able to get rid of that credit card debt pretty quickly, at the very least, but maybe you live in New York or something.
posted by chaiminda at 2:57 PM on May 3, 2013

Debt snowballing is emotionally satisfying, but it might not be the most cost effective.

The best answer is to come up with a couple of scenarios and play them out on a spreadsheet.

But the easy answer is to pay off the debt with the highest interest rate. (Or that might soon be highest: that 0% apr might turn into 15% in a year, and then you're screwed.)
posted by gjc at 4:25 PM on May 3, 2013 [3 favorites]

Don't forget you are likely able to deduct any interest you pay on your student loans from your taxes. You should check with the IRS/accountant/tax lawyer to see how much you can deduct.
posted by EatenByAGrue at 5:26 PM on May 3, 2013

I'd pay off the student loans because they have interest (and are not dischargable in bankruptcy). But I saw/read an account of 0% credit card companies purposely "losing" a payment so they could start charging interest. I'd call on the day payment is due and make sure your account has been credited, if it hasn't you can pay over the phone with a bank transfer.
posted by 445supermag at 5:48 PM on May 3, 2013

That balance transfer fee can get expensive quickly - don't be fooled by the fact that it looks lower than the 4.5% APR. Especially if the fee gets added to the balance, or if you lose the teaser rate, it might get expensive very quickly.
posted by yarly at 6:11 PM on May 3, 2013

file for bankruptcy? you probably can't get rid of the stafford loan, but maybe the others.
posted by cupcake1337 at 7:43 PM on May 3, 2013

Since 2005, private student loans have been made just as hard to discharge in bankruptcy as Stafford loans.
posted by aw_yiss at 7:53 PM on May 3, 2013

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