Should You Pay Off Credit Cards or Student Loans First

Okay, you have a student loan well as credit card debt. Although you’re desperate to get rid of both, the most effective way is to tackle one debt at a time. But which one? Read on to help you decide.

Repayment Factors

When deciding whether you should pay off credit cards or student loans first, several repayment factors come into play. Those include the consequences of not paying, the ability to have the debt canceled, repayment flexibility, ease of becoming current on delinquent balances, the debt’s long-term cost, total balances, and ease of borrowing even with debt. Let’s look at them all.

Non-Payment Consequences 

Not paying either type of debt will hurt your credit score and could result in you being sued and having your wages garnished. If you have federal student loans, however, you could also forfeit your federal income tax returns to satisfy the debt. That’s not good.

Ability to Cancel the Obligation

In certain situations, you can have your student loans forgiven and discharged in bankruptcy. By contrast, the only way you can cancel your credit card debt is through bankruptcy and debt settlement, both of which will damage your credit score. Although, with debt settlement, your credit can rebound faster. See student debt relief programs.

Repayment Flexibility

Credit cards have less flexible repayment options than do student loans, depending on your ability to pay. Lenders typically have several kinds of repayment plans from which to choose. If you can’t make your minimum credit card requirements, your options are pretty much limited.

Catching Up on Delinquencies

You have more ways of becoming current with overdue student loan payments than with credit cards. For instance, your lender could retroactively assign forbearance to your account and basically erase your missed payments. If you’re behind on your credit card payments, however, issuers are much less lenient.

Which Debt is Most Expensive?

Because credit card interest rates are typically higher than student loan interest rates, credit card debt costs more. Also, unless a credit card is used exclusively for education expenses, credit card interest is not tax deductible.

Total Amount of Each Debt

If how much you owe on your plastic is less than your student loan balance, you can pay that debt off easier. If you concentrate on paying off your credit cards, you’ll have fewer payments to make monthly. However, whether you should pay off your credit cards or student loans first depends on the amount owed on each debt.

How Lenders View the Debt

When you’re in the hunt for a new loan or credit card, lenders usually abide student loan debt a little bit more than they do credit card debt. However, it is possible to owe so much in student loan debt that you can’t manage any more obligations.

Which Debt Should You Pay Off First? 

Compared with your charge cards, the sole reason to erase your student loans first is to avoid defaulting, which can result in the federal government snatching your refunds. Still, when you factor in repayment options, the cost of debt, interest rates, and other considerations, paying off your credit cards first is the best move. After you do that, you can turn toward your student loans.

Should you pay off credit cards or student loans first? Well, now you have your answer. The most important thing is that you’re seriously tired of being in debt and want to do something about it. You’re on your way to a better financial future. 


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