Should You Get a Credit Card If You’re Paying Off Student Loans?

 December 26, 2019
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If you’re one of the almost 45 million Americans suffering under the burden of student loan debt, 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. 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 to pay off student loans before getting a credit card

Let’s start with the cons, since some of them could wreak havoc on your finances if they apply to you. Here are some reasons to think twice before getting a credit card.

You’re not always so 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 a hefty amount of credit card debt in addition to your student loan debt. This is especially true since credit cards typically have higher interest rates than student loans.

You’re concerned about making payments on time

Using credit cards can take the focus away from your debt repayment strategy. You already have your student loan bill to remember every month. Often, adding on a credit card (or multiple credit cards) complicates this.

You worry whether you have the discipline to pay it back

When you go through all the effort to pay off your student loans, you develop a level of financial discipline. Because of this, you might 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. At that point, you’ll be well aware of how hard it is to get out of debt.

Reasons to get a credit card if you owe student loans

On the flip side, there are also some compelling reasons to go ahead and open a credit card account, even with student loan debt. These include:

You want to build credit history

Credit cards, along with your student loan history, help to build your credit if you use them responsibly. Unlike installment loans (such as student debt), credit cards are considered revolving credit. Revolving credit makes up 30% of your FICO credit score, so if you pay off your balance regularly, a credit card can boost your ability to get new loans if you need them.

You want perks and benefits

Many credit card companies automatically include things like rental car insurance or trip cancellation insurance. Some have cash back programs or other rewards. All of these benefits vary by card, but they’re quite common, and if you avoid interest charges by paying off your entire balance each month, these perks could cost you little to nothing.

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.

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 best decision on whether to pay off your loans before applying for a credit card depends on you are your circumstances. That said, here are a couple suggestions if you do get that magic piece of plastic:

  • When you get your first card, use it for small purchases, like buying food or gas, and then get into the habit of paying it all off at the end of the month.
  • Unless you routinely have a bank balance near zero, think about signing up for autopay, where the monthly minimum payment for your card is automatically deducted from your bank account. While it’s best to pay it all back each month, having a backup is great if you forget.

With these tips, you should be well on your way to responsible credit card ownership, regardless of whether you wait until you pay off your student loans.

Michael Kitchen contributed to this report.