If your friend has any fall back plan (a parent or a line of credit) just in case he absolutely needs to pay off the b/t card, say because he managed to miss a payment and the rate is jacked to %19.99, it’s a no-brainer.

In my case, I have about $140,000 at 2.75% fixed and $10,000 at 5% fixed. So for me, it seems worth it to work on the $10,000 loan more quickly. But as much as I dislike being in debt, I just haven’t found it financially reasonable to make extra payments on the $140,000. Certainly emotions can come into play. But there should be a balance. If I decided to use all the money I put away for retirement for my student loan, I would pay an extra $9240 in taxes, and I wouldn’t be able to get the student loans interest deduction, which would be $700. So that is >$10,000 per year. I will have to pay taxes on that money, when I retire, but I can live with that.

Obviously, not everyone managed to graduate at the right time to get the interest rate that I did. But I think it is important to sit down and do the math before making a significant financial decision.

First, get a credit card that can pay off your student loan and pay your student loan with that credit card.

Second if you have some credits left, but a lot of stuff, make sure everything is paid in full by the credit card

Third, file bankruptcy. And 7 years later you are clear with no debt and no bad record.

Also, don’t believe the banks when they tell you that you have to keep debt around to have a good credit score. Look, you can get a good mortgage and low insurance rates without caring debt for no reason.

I agree with you to save up a couple of thousand dollars before you start paying off debt aggressively, but letting student loans linger around just doesn’t make practical sense to me.

I think personal finance is about more about the PERSON, not the FINANCE. Don’t always let the numbers dictate your decision. Do what your heart tells you is the right thing to do.

While I agree with much of your post, I disagree with your single minded focus on paying off student loans as soon as possible.

Lets say you are dealing with $10,000 in student loans.
$5000 is at 5% fixed for 20 years
$5000 is floating at 7.8%

You have the ability to pay all interest and have $10,000 towards principle or savings.

Keeping the two loans in place will cost you $640 in interest charges. From this number, one has a lot of choices to consider:
1. Is the interest tax deductible? If so, they may be costing you $500 in after tax dollars.
2. Savings gives you power and options. Instead of paying off the loans, you put the money in a saving account earning 4.5%. You will bring in $450 with an after tax take home of around $300.

Bottom line, keeping the loans in place costs you $200-300 per year.

What does the $300 get you:
1. Better credit ratings lead to lower mortgage costs, car loans, and insurance.
2. People who “need” money get it, but it costs them. Having 10K in the bank is great insurance against car repairs, medical bills, living arrangement issues.

My general rule:
1. Take “available” free cash flow and split it 50/50 until you have a reasonable cash cushion. How big a cushion you need depends on things like available family funds, dual incomes, stability of current job/pay propects. The more risk one has, the more they need cash on hand.
2. Once the cash savings reaches 3 months expenses, change the allocation to 75/25 debt/savings.

In my example, I would recommend keeping the fixed loan in place for a while. I would probably pay off the floating rate loan. Saving 100% until I got back to $10,000.

I cannot underestimate how much I have saved by maintaining a stellar credit rating. I crashed my car last year and my rates went down? WFT? When I needed a car loan and a mortgage, I had a lot of leverage with bankers and got the best deals possible.

Good luck to you and your friend.