I am almost finished paying off my college debt I have $2287 left. Had financial trouble and medical issues so I ended up missing most of my scheduled payments. So my question is would it be best to pay this small amount off in full or to divide it into small payments. As I’m not sure if this would make my credit score drop to an even worse score than it is now. My score is 495. This is my largest bill on my credit history
Congrats on being able to see that light at the end of the tunnel – it must feel great knowing that the end of your college debt is within reach.
So you have student loans and you’ve missed a bunch of payments on them. More likely than not, the loans are in default. Your priority should be getting your loans in good standing, and that won’t necessarily require paying off the whole amount immediately.
Your first step? Figure out what type of student loans you have - federal or private. Log into the government’s online Federal Student Aid portal. Any student loans that don’t appear there are private and will most likely be listed on your credit report.
The consequences of student loan default for federal loans are more severe: The government can garnish your wages, Social Security and tax refunds, among other things.
Next, reach out to your lender and ask what you need to do to get your loans in good standing. For federal loans, there are three ways to get out of default: 1. Repayment in full, 2. Consolidation and 3. Rehabilitation.
If you have federal student loans and are concerned about your credit, rehabilitation is likely your best option.
To get rehabilitation, you must make nine monthly payments within 10 consecutive months. Your new monthly payment will be 15% of your discretionary income, or you may request a lower amount. Once you do that, the default will be wiped from your credit report. (Your history of missed payments will remain on your credit report, however).
Best of luck!
Thanks for your question. I second what Teddy said – before you worry about your credit, it’s essential to figure out your options with the student loan. Dividing it into payments vs. paying it off in full don’t really matter at this point.
If $2,287 refers to credit card debt however, it would be different. Which one do you have -a loan or credit card balance?
Also let us know if you have follow-up questions and we can help!