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Which to pay more student loan or credit card?

screen2011screen2011 Registered User Posts: 6 New Member
edited January 2013 in Parents Forum
If my current budget for credit card and student loan payments is this:
credit card - 100/month (2,450 balance)
student loan - 100/month (3,600 as of today, more loans next semester)

Would it be better to change this to:
student loan - $10 per week (just enough to pay off accrued interest)
*credit card - 160/month (hardly any interest, last statement show a dollar interest fee charge)

Is it wise to pay off only the interest and prioritize other debt or much wiser to pay off some of the principal in the loan?
Post edited by screen2011 on

Replies to: Which to pay more student loan or credit card?

  • polarscribepolarscribe Registered User Posts: 3,232 Senior Member
    Always pay off the highest-interest debt first. So get your credit cards down, or they'll eat you alive eventually.
  • busdriver11busdriver11 Registered User Posts: 15,172 Senior Member
    Why are you not listing what the interest rates are?

    Did you just forget to put it in your post (I'm hoping), or are you not even taking that into consideration? It doesn't matter what your monthly interest payment is, what is the rate of your credit card and loan? Is the credit card rate just a teaser low rate that will go up soon, or what is it?

    Usually it is wiser to pay off the credit card first, but that's generally because the rates are higher.
  • screen2011screen2011 Registered User Posts: 6 New Member
    ^^ yes, the credit card rates will go up by October. I am not sure what the rate is, but I hope I'll pay off the entire prior to that date.

    - I want to pay off my student loan quickly; however, I think that perhaps it might be wiser to save the money in my checking account in case I lose my job or I'll need funds later on for something else.
  • busdriver11busdriver11 Registered User Posts: 15,172 Senior Member
    Maybe that would be wise. You never know what could happen, and it's good to have spare money in your account. I would find out what those rates are though, you might not like what you see. Or then again, you might say, wow 1%? Maybe I'll wait to pay it off until the last minute in October. We always get these super low interest rate credit cards and pay them off right before they go up. Of course, the credit card companies depend upon you to not pay them off and accept that high rate, but it sounds like you're keeping your eye on your money.
  • 2016BarnardMom2016BarnardMom Registered User Posts: 1,852 Senior Member
    You also will want to investigate whether your student loan interest is tax deductible. If so, it can be another advantage to getting rid of credit card debt first because that interest is never tax deductible.
  • SteveMASteveMA Registered User Posts: 6,079 Senior Member
    Your credit rating will look significantly better if you pay off the credit card and continue to make regular payments to the student loan. Why are you in a hurry to pay off the student loan? Unless the interest rate on the loan is high, pay off the credit card ASAP. You should be paying down debt and saving at the same time. Student loans can be deferred if you lose a job, a credit card cannot. Pay off the card and then don't use it again until your loan is paid off--OR just put your gas on the card and pay it off monthly!
  • KKmamaKKmama Registered User Posts: 3,080 Senior Member
    Pay off the credit card. And use it as little as possible, except for gas, as Steve suggested. If you are paying $100 a month, there is no way that you will have the balance paid off by October.

    And check the fine print. For example, we purchased a washing machine and dryer under a policy of "no interest for a year". Had we not paid off that bill at the end of the year, we would have had to pay a high rate of interest for the entire amount of the purchase, even if we only had a very small amount left to pay. Credit company tries to mislead people by sending a monthly statement with a minimum payment that would not come close to paying off that bill in 12 months; wise people divide the outstanding balance in to monthly payments and pay it off early, as we did in 8 months.
  • BCEagle91BCEagle91 Registered User Posts: 22,762 Senior Member
    You should know what your loan rates are and how much you are paying in interest per month and on an annual basis. It helps to have a spreadsheet with an income and balance sheet so you can see how you are doing and make plans and modifications. Seeing the data is different than keeping a rough idea in your head for most people.
  • wis75wis75 Registered User Posts: 13,909 Senior Member
    Pay off the credit card ASAP. Credit cards should be used for convenience, not as a loan. They should be paid in full every month. Student loans are an investment in your future, credit card balances are indicative of overpending, not staying within your budget.
  • WordWorldWordWorld Registered User Posts: 377 Member
    I think we are all in agreement so far, credit card first. Minimum balance on student loan and throw all the rest to pay off credit card before higher interest rate kicks in.
    Why are you in repayment if you are still incurring school debt? It used to be that they did not "bill you" if (1) you returned to school for grad or otherwise OR (2) until several months after graduation. Have things changed? That seems weird.
    If you are the kind who is prone to impulse buying, one piece of advice that I liked (but never followed) was to freeze your card in ice in the freezer. That makes it hard to use except for emergencies. Using credit only for gas and paying in full each month to build up your credit score is probably better advice nowadays, though.
  • lvvcsflvvcsf Registered User Posts: 2,329 Senior Member
    The amount of the debt looks manageable so I agree with everyone else. Pay off the higher interest rate first. If your job situation is shaky or if you felt that in the future you might not be able to make payments at all I would pay off the student loan first. Student loan debt cannot be discharged through bankruptcy, credit card debt can.
This discussion has been closed.