If you are suffering under the burden of student loan debt like a staggering 40 million Americans are, then you might be afraid to dip your toes into the credit card scene for fear of getting into even more debt. Or you might just wonder what the point of using a credit card is when debit cards do many of the same things.
While there’s always the threat of credit card debt, if you are responsible with your finances and make your credit card payments on time, getting a credit card might actually be a smart financial move. Not only is it advisable to get acclimated to using a credit card responsibly, but it can also help build your credit.
To help you make your decision, here are some pros and cons of getting a credit card before paying off your student loan debt:
Reasons You Should Pay Off Your Loans Before Getting a Card
1. You’re not careful with your spending. If you have a credit card, studies show it’s far easier to spend on things you normally wouldn’t, especially if you have a substantial balance available. You could easily accrue credit card debt in addition to your student loan debt. Credit cards typically have higher interest rates than student loans. The average credit card APR nationwide is around 15% while student loans are much lower.
2. You’re concerned about making payments on time. Using credit cards can take the focus away from your debt repayment strategy. You already have one bill to remember every month: your student loan bill. Sometimes adding on a credit card or multiple credit cards complicates this.
3. You’ve yet to learn discipline. When you go through all the effort to pay off your student loans, you develop a level of financial discipline. Because of this, you will be less likely to fall into a debt trap with credit cards if you wait to use them until after your loans are paid off, because you will know how hard it is to get out of debt.
Reasons You Shouldn’t Pay Off Your Loans Before Getting a Credit Card
Continuing with the list, here are the plus sides to getting a credit card:
4. You want to build credit history. Credit cards, along with your student loan history, help to build your credit if you use them responsibly. Credit cards are considered revolving credit (no pre-determined loan or payoff schedule) unlike student loans, which are considered installment loans (with a set balance to pay back by a certain time). Revolving credit and how you utilize it makes up 30% of your FICO credit score, so it’s important to pay off your balance every month.
5. You want to track spending. Credit cards, when used correctly, can help give you track your spending habits in ways that using cash can’t. A debit card can do the same thing, except debit cards might not have as many built-in benefits and protections as credit cards.
6. You want the free perks and benefits. Speaking of built-in protections from credit cards, many credit card companies automatically include things like rental car insurance or trip cancellation insurance. Protection types and amounts vary by card, but they’re quite common across all credit card types.
7. You’re learning to be financially responsible. If you can handle a credit card, not overspend, and remember to make your payments each and every month, then you are certainly ready to make a plan to aggressively pay down your student loan debt.
Ultimately, the choice over whether or not you should pay off your loans before applying for a credit card is entirely up to you.
When you do get your first card, use it for small purchases, like going to the grocery store or getting gas so you get into the habit of using it and paying it off on time.
It’s also smart to set up your credit card to automatically make the minimum payment. While we highly recommend paying off your credit card in full every month, having automatic backup is great if you forget to pay.
Remember that your payment history makes up 35% of your credit score, so above all else, make sure you always pay your credit card on time every time.
With these tips, you should be well on your way to responsible card ownership, regardless of whether you wait until you pay off your student loans to apply for one.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|