Student Loan Debt Takes A Backseat To Credit Card Debt, Finance Experts Warn
When folks have multiple types of debt they’re trying to pay off, it can be difficult to know which check to write first. But for the many people struggling under student loan debt, it’s important to pay off other loans first, financial experts advise.
Sara Molina, a manager at American Financial Benefits Center (AFBC), a company that helps consumers apply for loan repayment assistance, explains the reasoning behind this. “It’s somewhat counterproductive to get one form of debt under control if it comes at the expense of another,” says Molina. “When student loan repayment means racking up more credit card debt or missing car loan payments, something needs to change.”
Interest rates are key
The most important thing to look at when trying to tackle debt is what the interest rates, or APRs, on your various debts are. If you have a high-APR credit card, for example, it’s best to pay that off as quickly as possible, even when there are other debts you’d like to pay off. Being strategic about your debt repayment plan can save you hundreds, even thousands, of dollars in interest, as well as helping you to get debt free faster.
However, this doesn’t mean skipping payments on any of your debts, warns Molina. If you miss a payment, or make a late payment, on any debt, it can negatively impact your credit score. This limits your options for new loans, low-interest mortgages, balance transfer credit cards, and rewards credit cards.
Reducing monthly expenses helps
If you’ve got student debt, credit card debt, car loans, and a mortgage, it may be helpful to take a hard look at your monthly expenses and try to bring them down as much as possible—at least until your debts are under control. But when you do lower your overhead, make sure the money you save is going straight to the debts you’re trying to pay off.
Says Molina, “Anytime you can lower your bills, you have to be careful not to spend that money carelessly as it might feel like extra money.”
Having a low-interest credit card, or a balance transfer credit card with a zero percent APR promotional offer, is always helpful when trying to pay off debt. A rewards credit card is even better, as you’ll earn cash back, points, miles, or other bonuses for using the card.