| Prioritizing which debts to settle first? |
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newbieinvestor
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| Prioritizing which debts to settle first? |
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Hi, I'm 24 years old and I graduated college in 2008. I have student loans totaling approximately $17,000. On top of that, I made some bad judgments when it comes to credit and I have the following bills that are in the hands of debt collectors:
- $800 BofA credit card debt from 2005.
- $300 T-Mobile debt from early 2009 (I am disputing this amount - I received an early termination fee after I cancelled my phone contract 2 weeks early because I had absolutely no service in the county I was visiting for 2 months).
I am trying to build my credit score (it is 520 currently) and begin getting out of debt. I earn $35,000 in one of the most expensive cities in the country. I have no savings and I currently own no credit cards at all. I'm not really sure how I should start building a healthy credit future.
Should I pay my BofA credit card debt in full? I was told that begining to make payments opens the debt again and it will be on my credit report for an additional 7 years as opposed to being wiped clean by 2012.
What are my best options for beginning to pay off my students loans (they are all government loans)? I am currently paying around $70/month, should I pay more and forget about my other debts?
What are my best options for beginning to save? Should I just open a traditional savings account or should I look into other options?
How I can I get negative things taken off my credit report? Can I get negative things taken off by the creditor once I settle the debt in full?
Thank you in advance for any help/advice.
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Mon Aug 09, 2010 8:42 pm |
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oldguy
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quote:
Can I get negative things taken off by the creditor once I settle the debt in full?
No, remember the reason for credit scoring. The credit report is your HISTORY, you are building history via your financial actions - and that history is available to new lenders for them to use as a warning that you may not repay your loans. Just manage your finances and let the score take care of itself, it's pretty hard to game their system.
If the student loan is below 6%, don't prepay that, pay the minimum & keep it for the full term - it is inexpensive use of someone else's capital. Use that money to pay off short term revolving consumer debt. And after that use it to fund your wealth building accounts - don't put much in savings accounts, use long term investments. Eg, $500/month in a 2% savings account is $250,000 when you are 54. But it will $1,600,000 if invested at 12%. Same $500/m cost to you to vastly different outcomes - an important decision for you. So you don't want to derail a $1.6M Plan by directing your income to prepay a $17,000 SL.
A $17,000 student loan is a good thing, there are lots of people your age with $100,000 loans and no job. You didn't mention a car loan - late model cars are a primary source of financial problems, they are the biggest depreciating item that we own and, for some reason, americans think that cars are more to be trendy than for transportation.
As for the T-mobile debt - always pay a bill when it is due, and THEN dispute it, never dispute something by refusing to pay it.
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Mon Aug 09, 2010 11:29 pm |
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newbieinvestor
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So there's no way to bargain over my debt? IE- I pay the debt in full and in turn the collector tells the credit bureau that I paid in full so there's no negative marks.
Thank you for the investment strategies, I will look into long term investments.
I don't have a car loan. I drive a 1989 car that I paid in cash for - it has needed about $800 in repairs this year but insurance is cheap and I don't want to add to my debt.
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Tue Aug 10, 2010 9:35 pm |
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rosehips
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quote:
Originally posted by newbieinvestor
So there's no way to bargain over my debt? IE- I pay the debt in full and in turn the collector tells the credit bureau that I paid in full so there's no negative marks.
There will still be negative marks because it will appear on your history, although unless I am mistaken, it will no longer affect your score. The trouble is, score isn't everything. Lenders look at your history when they decide whether to give you credit and what percentage to offer you.
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Wed Aug 11, 2010 10:21 pm |
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oldguy
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quote:
I drive a 1989 car that I paid in cash for - it has needed about $800 in repairs this year but insurance is cheap and I don't want to add to my debt.
 You may be quite wealthy one day. Many families assume that late-model cars are a "necessity" and that, if they can make the payments, they can afford the cars.
A near-new car depreciates at about $5000/yr, if you continually renew it so that your car is never older than 5 yrs, then you will continually pay $5000/yr for a driving lifetime - you'll probably drive until you are well past 70, maybe 50 years.
The $5000/yr invested at 11%/yr for 50 years is $9,000,000. A two-car family can have a "lost opportunity" cost of $18,000,000. So if you can drive your cars 200,000 miles and over 10 yrs, you can cut that loss in half. And that's why millionaires often drive older cars.
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Thu Aug 12, 2010 1:16 am |
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coaster
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| Re: Prioritizing which debts to settle first? |
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quote:
Originally posted by newbieinvestor
I was told that begining to make payments opens the debt again and it will be on my credit report for an additional 7 years as opposed to being wiped clean by 2012..
Don't quote me on it, but I believe that applies if the debt is in collection. It it's still with the original creditor, then it's open until paid as agreed. But yes, any activity on it will reset the seven-year window to now. There's a wealth of information at:
www.myfico.com
Please feel free to correct me if I'm wrong. 
~Tim~
Eye Candy : Why Whimsy
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Thu Aug 12, 2010 1:22 am |
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mukeshkkashyap
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thanx for you post
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Wed Aug 18, 2010 7:36 am |
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Robert00
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To build your credit score efficiently, pay off your debts immediately by paying more than minimum amount. Keep a regular check on your credit report.
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Tue Oct 12, 2010 12:37 pm |
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CaliChristian
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You may want to look into credit counseling to see what your options are. They can help you in determining a plan that is right for your specific problem.
Non-Profit credit counseling. Over 20 years experience, we have helped over 200,000 families and individuals become debt free.
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Tue Oct 12, 2010 10:02 pm |
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littleroc02us
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The best is that your young and can get on the right track early. I would start off with the smallest debt regardless of interest rate. Pay off that T-mobile debt first and then pay the minimum on the others. When you do pay that off you will feel a sense of accomplishment. Then move on to the next debt and apply the additional payment amount to the next one in line. Eventually you'll start eliminating the school loan. Don't let anyone tell you that student loan with a low interest rate is good debt. There is no such thing, unless you enjoy great risk. First of all school loans aren't bankruptable, so if you were to lose your job, you will still owe on them. Risk is what people forget when it comes to debt. For example, did you know that most small businesses don't succeed. Can you imagine someone who borrowed money to start a business or put their house up for collateral and then their business fails. Not a place I want to be.
Good luck!
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Thu Oct 14, 2010 4:22 pm |
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theRecessionGuy
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| Re: Prioritizing which debts to settle first? |
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quote:
Originally posted by newbieinvestor
How I can I get negative things taken off my credit report? Can I get negative things taken off by the creditor once I settle the debt in full?
There are a few credit repair services out there that can do wonders for your credit. BUT BE CAREFUL, THERE ARE A LOT OF SCAMS WITH THOSE KINDS OF SERVICES, AND ONLY A FEW GOOD COMPANIES. They are also not guaranteed to be effective because of how they work: basically they send personalized letters to the companies that have filed complaints against you requesting those companies to respond with documented proof that you have done wrong. Legally if those companies do not respond within 30 days (which they often don't) then the complaint is wiped from your credit history.
Good luck 
http://theRecessionGuy.com
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Wed Oct 20, 2010 3:55 am |
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LindaPH2010
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Always pay off highest interest items first. Get rid of excess credit cards but keep a few that are well known and pay off each month.
http://Linda.FilipinoWealthBuilders.com
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Wed Oct 20, 2010 2:12 pm |
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Adria.John
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1. Secured debts should be paid off first.
2. Higher interest rate loans
3. Lastly the smallest installment loans
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Sat Oct 23, 2010 10:02 am |
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wystanfi
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| Re: Prioritizing which debts to settle first? |
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You should take a regular check on your credit report. Secured debts should be paid off first.
Thank You.
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Wed Jan 19, 2011 5:06 am |
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AtoZ
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At least you are conscious of your debt problems and understand where your issues lie - I believe that is half the battle. Good for you for taking steps to get back on track.
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Thu Jan 20, 2011 12:15 pm |
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