September 15th, 2020
Should I Pay Off Credit Card or Student Loan Debt First?
Credit card and student loan debt are both known for being some of the most common and most difficult types of debt to repay. Having both types of debt at the same time can be very stressful and leave you wondering, which one should I pay off first?
Before we get into that, it is most important to stay current on payments for all of your liabilities. Otherwise, you put yourself at risk of defaulting and seriously harming your credit.
Now, the answer is not as simple as making your minimum payments on each loan in order to stay in good standing then going all in on paying off one loan at a time. What it really comes down to is analyzing each loan and its respective repayment options along with your financial needs over the repayment period.
For example, planning to buy a house soon?
Likely you will need some cash for the down payment.
By calculating the future cash need, you can then calculate how much you need to be saving in order to reach that goal which will then allow you to calculate how much cash you have leftover to make additional payments towards your debt.
Prior to making those additional payments, be sure to know the pros and cons of paying off early. Are you sacrificing any potential debt forgiveness or repayment options? This is most common with student loans.
Once you have a handle on the characteristics of each of your loans, paying off the highest interest rate card first will likely be your best option as it cuts down on your overall interest expense. However, some people are fueled by the motivation of paying off a loan in its entirety, thus paying off the smallest balance first might be the best move for you.
Working with a Certified Financial Planner™ can help you to review your upcoming cash needs and put together a plan for paying off the debt as efficiently as possible.