My credit score for May is 719 which is down from last month’s score of 737. The 737 score in April was down from 781in March which was a large drop. That drop was presumably from my putting $4,000 of student loan debt on a credit card with a low balance transfer rate. I thought the 737 score fully reflected that but I guess not since my score went down again this month. It should stabilize at this level. This is still a decent credit score and shouldn’t affect me since I don’t plan to apply for any credit. The exception will be my federal student loans but those rates are fixed and my credit score has not impact on that.
Managing Credit/Debt
April Credit Score
My credit score for April is 737 down from 781 in March. The drop is most likely because of my taking a credit card advance to pay down one of my student loans. Since I don’t plan on borrowing any money other than student loans this year the drop in my credit score doesn’t concern me. A score of 737 is still pretty good and I’d probably be able to get the same credit with this score as I could get with the 781.
Do Reward Cards Actually Reward You?
There are many different reward cards and most pay between 1% to 5% back. These cards could still be costing you money though. This is because people generally spend more when paying with credit cards than paying with cash. The most often quoted percentages I see are from 12-18% but I couldn’t find the actual study these figures are based on. It does make sense to me though that people in general probably spend more when using credit cards and the percentage is probably higher than what they would receive back from a reward card.
That being said just because it is true for people in general doesn’t mean it is true for you. When using your reward card you just need to be sure that you aren’t spending more than you would otherwise. I occasionally spend money with my credit card that I know I wouldn’t have spent otherwise because I didn’t have any cash with me. This doesn’t mean I’m spending more money overall though because otherwise I probably would have just made the purchase later and if I didn’t have a credit card I would be carrying more cash with me to spend. I keep my spending quite low overall and don’t feel that using credit cards increases my spending. If I make an excessive purchase using my credit card it will probably be offset by reduced spending somewhere else. I’m confident that my reward cards actually reward me. If you’re using reward cards you should make sure the same is true for you.
The CCRAA and Law School Loan Forgiveness
The College Cost Reduction and Access Act offers a loan forgiveness program for those who work in public service. As I am strongly considering a career in public service when I graduate from law school I decided to do more research on the loan forgiveness program.
The details of how the program works are somewhat complicated but this fact sheet from Brooklyn Law School and this one from NASFAA give a good overview of the program. First, you need to consolidate your loans(private loans aren’t eligible) with a Federal Direct Consolidation Loan. Next you need to make payments for 10 years(120 payments) while employed in a public service job. The remaining debt then will be forgiven.
In order for this to work you need to be on the income-based repayment plan. Otherwise,under the standard repayment plan after 10 years the loan would be paid in full and there wouldn’t be any balance remaining to be forgiven. The income-based repayment plan limits your annual debt repayment to 15% of your discretionary income-adjusted gross income minus 150% of the poverty level. By my calculations this would result in $37,035.00 in payments for someone making $40,000 a year. Since I expect to have around $70,000 total in loans I would have about half my debt forgiven. Over the 10 years one’s income would most like rise though which would also increase the total of payments.
There are some drawbacks. If you don’t stay in public service for 10 years than you won’t receive any loan forgiveness and any interest that remains unpaid because of IBR payments is capitalized when the borrower leaves the program. You don’t have to be in public service to use the IBR program though and it forgives any remaining debt after 25 years. Another potential pitfall is that the amount of forgiven debt is treated as income in the year it is forgiven. This could result in a huge tax bill. They may address this issue but I’m not aware of any solutions yet.
All in all it is a good deal though and I’m worrying a little less about my huge student loan debt. Make sure you get all the relevant information if you wish to take advantage of this program.
Why I Paid Student Loan with My Credit Card
It appears that I need to give more information on why I paid down my student loan using a balance transfer from my credit card. I’m confident that it was the wise choice. My student loan charges 8.5% interest and the credit card charges 3.99% interest. The credit card is cheaper money. Even with the $75 balance transfer fee I’ll come out ahead using the credit card.
There is a limit of $2500 in student loan interest that can be deducted in a year. This transfer was for $4900 and a little over $1600 of that went to interest. I plan to pay this loan down more over the year and it is possible that I’ll hit the limit. Even if I don’t since my taxable income for the year will likely be low I don’t think I would be able to use all of the $2500 deduction. I don’t think this deduction would allow me to get back more than the taxes I pay.
There aren’t really any programs I know of that will pay off law school loans. There are some LRAP programs but the ones I have seen would fall well short of paying all my loans. I have about $50,000 in loans now and will probably have about $65,000 when I graduate. I’m not worried about not having any loans available to be forgiven. I’m trying to pay down my Grad Plus loan since it has an 8.5% interest rate but I plan to stretch my Stafford loan payments out as long as possible.