Sallie Mae Redux

You know as well as I do that Sallie Mae's a wolf in sheep's clothing. In The Book, I endorse locking in your student loans at the lowest rate possible, then paying off your credit card debt first, because if Sallie Mae is a flesh-eating bacteria, the credit card companies are the plague. Wait, the flesh-eating bacteria is sort of the modern-day equivalent of the plague. They all suck. You owe them money, they are charging you interest, they're going to come and get you and roast you on a spit.

But usually you can get a low rate for the life of the loan with Sallie Mae (mine is 4.86%, since I consolidated in 2000, much lower than you can typically get now, due to some crap laws enacted in 2005/6) and credit cards typically charge high interest rates (think 19% or more). So if you're in this typical situation, you pay the minimum on your student loans, and aggressively pay off the credit card.

However, your student loans aren't always going to be giving you a lower interest rate than you can get from the evil credit cards. I have a credit card balance that, since I have impeccable credit, is living on a 0% interest rate credit card for one year. My student loans (which, not incidentally, are much larger than my credit card debt), are still earning interest at a rate of 4.86%. At the end of the year, I can "surf" the remainder of my credit card debt to a new 0% card. (NB: I don't use any credit cards anymore besides American Express because I'm not buying things I can't afford. I suggest you do the same.) But my student loans will be earning interest at a rate of 4.86% until 2018 without abatement. No one is going to offer me a lower rate. Certainly not that viper Sallie Mae. I could do something insane and put my student loans on a 0% credit card, but the monthly payment for that kind of credit card debt would be more than I could pay, and also much harder to surf to a new card at year's end.

Which brings us to the obvious conclusion: Pay off the highest interest-rate loans first. In my case, that means pay off the student loans more aggressively than the credit card. Since my student loan principal dwarfs my credit card debt, I'm earning interest on an already large principal interest every month. Meanwhile, my relatively paltry credit card debt is earning no interest at all. Watch out, Sallie Mae. I'm not flattered that I'm so ahead in payments I don't owe anything until Jan. 2008. You'll be getting large-as-I-can-manage checks from me every month.

I'm going to investigate this further. Remember: the 0% interest credit card is only a good deal if you're scrupulous about paying the minimum on time every month. And you have to leave ample time to surf to a new card at the end of the year or your 0% will turn instantly to some insanely high rate and you'll find yourself exactly where the banks want you: in a whole bunch of bad, useless, idiot debt.