Should You Pay Off Student Loans or Credit Cards First?

As a new grad, you’re faced with tough financial decisions as you begin life in the real world. One of those decisions is considering which debt to pay off first, student loans or credit cards?

Making an informed decision about which debt to pay off first will help save you money over the life of your loans. As someone who has multiple debt accounts, here are a few questions you should ask yourself when prioritizing what debt to pay off first.

What kind of debt are you dealing with?

The first step is to fully understand the kind of debt you’re dealing with. Then you can compare it to how it will affect your finances and goals long term.

The money you borrow for education, like student loans, is considered “good debt.” This is because it can help further your career and ultimately work out as an investment into your future.

Credit card debt, on the other hand, is considered “bad debt” because it’s consumer debt that has no investment benefit tied to it. It often comes with extremely high-interest rates as well.

In addition, payments made on student loans are often tax deductible, while credit card payments are not. In the event that you own a business, you may be able to take any interest paid on your credit card balance as a tax deduction. But this is a much more limited option.

Are you staying current on all debts?

Before jumping into prioritizing which debt to pay off first, you must stay current with all debt payments. While your goal may be to pay off your debts as quickly as possible, it’s vital that you at least make the minimum payments until you come up with a debt payoff plan.

Missing a debt payment or paying your bill late will result in a decrease in your credit score. This could negatively impact your overall credit history. A good credit score is essential for getting the best interest rates on your loans and qualifying for other financial help.

Landlords and financial institutions will also use your credit score as a way to gauge your creditworthiness. So it’s important to continue making timely payments on all your debts.

Student loan debt vs credit card debt

Student loan debt is usually considered a better investment than credit card debt. So it’s safe to assume that you should pay off your credit cards before your student loans. But, there are several factors to consider as well.

Facts about student loans:

  • Interest rates on student loans are significantly lower
  • You don’t need a history of credit to get approved for a student loan
  • It can take potentially decades to pay off your student loan debt
  • Student loans are not eligible for bankruptcy but can be forgiven or reduced

Facts about credit cards:

  • Interest rates on credit cards can be very high
  • Paying the minimum payment could keep you in debt forever
  • You need good or excellent credit to be approved for a credit card
  • Credit cards can be discharged in bankruptcy

By reviewing the facts above you’ll be able to use this information to make an informed decision about which debt to pay off first. Whichever debt seems scarier to keep around is probably the one you should pay down immediately, while still paying the minimum payments on your other debts.

Have you considered alternative routes and assistance programs?

Before choosing to pay off student loan debt vs credit card debt, remember that you have options.

There are debt student loan relief assistance and forgiveness programs you can apply for. Depending on whether or not you have a private or federal student loan, you might be able to receive financial help. Here’s a complete list of options and alternatives for student loan help and assistance programs.

Likewise, when it comes to credit card debt you can take advantage of 0% interest promotions, or call your credit card company to ask for a help in reducing your payment.

You may also be able to negotiate a lower interest rate when combining multiple credit cards into a lower monthly payment with a personal loan.

Consider these alternative routes before deciding which debt to pay off first.

Which debt should you pay off first?

So which type of debt is worse, student loans or credit cards?

Both student loans and credit cards can keep you in debt for many, many years if you don’t pay them off quickly. It’s easy to be overwhelmed by both of them if you only make the minimum payments.

In the long term, student loan debt is often worse because of the amount of debt you’ll have before you’ve even started your career. On the other hand, credit card debt comes with very high-interest rates with not much return on investment to show for it.

It really it comes down to your own financial goals and which debt you feel most comfortable with paying off first. Just remember that any kind of debt is still debt in the end, no matter what for it takes, and you don’t want to be shackled by it for the rest of your life.

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