Loan Payment Advice

[1911OMS2]

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Incoming PGY-1. I have about 320k in un-subsidized/grad plus loans. Will be renting a low cost 1 bedroom. I do have a high rotating balance (~20k) on high interest credit cards due to unforeseen expenses. My credit score is about 660 because of this. I am making minimum payments. Should I defer my loan payments during PGY-1, pay off this cc debt then enter REPAYE next year? I am doing IM and plan on making a hospitalist salary three years from now.

 

[SigmaFS]

My recommendation is consolidate immediately after MS graduation/before residency and select REPAYE in the consolidation application. This recommended course of action because:

• You immediately benefit from the REPAYE 50% interest subsidy on any interest accrual. Keep in mind during any non-payment period (ie deferment) you're accruing 100% interest.
• In consolidation application, you can report zero income (prior to residency) resulting in zero payments for a 12 month period.

This assumes you're not married. Search my posts for more information.

 

[humblethinker]

Pay off your credit card debt first and certify your federal loans under the Repaye Federal plan. Then, in three years, refinance Repaye at a lower interest rate with a private lender and live frugally for two years on your attending salary to wipe away your entire student loan. So five years from now you should have no credit card or student loan debt.

 

[1911OMS2]

To clarify, will it be better to enter repaye this summer or after I wipe out my cc debt?

 

[humblethinker]

To clarify, will it be better to enter repaye this summer or after I wipe out my cc debt?

I would enter Repaye as soon as possible b/c it will lower your required payment that needs to be allocated to your federal loans, thus freeing up more money to put towards your credit card debt. Your first goal is to eliminate your credit card debt as soon as possible. Then once you are making an attending's salary, you can crush your federal debt quickly while also refinancing the federal into private to get a much better interest rate.

 

[1911OMS2]

Unfortunately I am not eligible for a 0% balance transfer through either of my cc companies. What other options do I have to decrease my interest rate while I chip away at this debt?

 

[RangerBob]

As Sigma pointed out, if you apply for consolidation and REPAYE immediately after graduation, then you get start repayment right away, but also get the $0 monthly payments that you would not be able to get if you started repayment after starting intern year. That would mean you'd have no loan payments for all of intern year, and your interest rate would effectively be halved (the gov't pays half of unpaid interest if you're in REPAYE).

As for the credit card debt--you just need to pay that off ASAP. If you can't get a 0% balance transfer from another company (keep in mind there's usually a 5% fee, and that fee will collect interest), then you likely only have one other option for borrowing, which is to get a residency and relocation loan (Wells Fargo has them, or at least they used to offer them, and others like Sallie Mae, etc. offer them). The rate may not be much better than your CC's. I took out a residency and relocation loan during M4 and with a credit score in the high 700's my rate was ~9% if I recall correctly.

Also, if you haven't spoken with your financial aid counselor, you should. Depending on what your unforeseen expenses were, you may be eligible to ask for a budget/cost of attendance increase, which would let you borrow more in federal loans. Typically health-related stuff, car repairs, etc., are eligible. Not all schools will certify for an increase--mine did, but I don't think they do any longer.

Regardless, the best option is to pay that $20k on your credit cards as fast as possible. If you do get a 0% transfer or a residency/relocation loan, the goal of those is only to lower your interest rate--not your payment. You should still attack that debt ASAP.

You should know what your intern salary will be already (or at least know last year's intern's salaries), so go to paycheckcity.com and use their salary calculator to figure out what your take-home is. Then budget for the things you need like housing, utilities, food, etc. See how much you have left to work with, and hopefully you can pay off that $20k within the year if you're in a low cost of living area. Consider renting a room in a house, or sharing a 1bd. If you're single, a studio should be plenty big if you're not willing to share, but sharing is the best way to keep costs down. As an intern, you won't be home much anyway to enjoy your home--all you need is a safe and quiet place to sleep. So obviously avoid renting a room in a house with college students...

Assuming you consolidate/apply for REPAYE and get $0 payments for your first year, if you still have credit card debt after that year, and the rates are typical credit card rates (mid/high teens), then you're best off putting federal loans in deferment while you pay off that credit card debt. However, if you plan to take a job eligible for PSLF, then it may be worth holding on to the CC debt a little longer if that's what's required to keep making monthly loan payments.

 

[dpmd]

Unfortunately I am not eligible for a 0% balance transfer through either of my cc companies. What other options do I have to decrease my interest rate while I chip away at this debt?

Usually this would be with a new card you apply for. Probably not an option until you start making money though. Unless you have a reason you qualify for a USAA card you will have a balance transfer fee but if you get a long intro rate it will be worth it for the interest savings. You can do that and start repaye with hopefully a zero payment initially and really hit the credit card but unless you want to bank on PSLF I would advise against staying in repayment if you can't get an intro rate balance transfer or if you can't pay it off before the intro rate runs out. I second the poster who mentioned trying to score some extra federal loan funds to pay off the credit card with.

 

[jrlob91]

Usually this would be with a new card you apply for. Probably not an option until you start making money though. Unless you have a reason you qualify for a USAA card you will have a balance transfer fee but if you get a long intro rate it will be worth it for the interest savings. You can do that and start repaye with hopefully a zero payment initially and really hit the credit card but unless you want to bank on PSLF I would advise against staying in repayment if you can't get an intro rate balance transfer or if you can't pay it off before the intro rate runs out. I second the poster who mentioned trying to score some extra federal loan funds to pay off the credit card with.

I have two maxed cards, totaling about 12,000. The APR on both cards is 13 and 16%. I was able to get a residency relocation loan to pay these off at about 10.5%, so it was nominally better, but will increase my credit score exponentially because I won’t be carrying such a high balance. I thought about a bunch of different options and this seemed like the easiest way to nominally save on some of the interest while also increasing my credit.

 

[dpmd]

I have two maxed cards, totaling about 12,000. The APR on both cards is 13 and 16%. I was able to get a residency relocation loan to pay these off at about 10.5%, so it was nominally better, but will increase my credit score exponentially because I won’t be carrying such a high balance. I thought about a bunch of different options and this seemed like the easiest way to nominally save on some of the interest while also increasing my credit.

Not a bad plan. Would be best to try to pay it off quickly though as the rate is still relatively high.

 

[jrlob91]

Not a bad plan. Would be best to try to pay it off quickly though as the rate is still relatively high.

Yep. That’s the plan.