Paying off Credit Card vs. Student Loan

KyouguKyougu Registered User regular
Just want to got some of you all opinions.

I have admittedly not been great about money, and ended up racking a lot of CC debt, not to mention Student Debt when I was younger. I have thankfully gotten much better about things and specially paying things off, and now I'm just down to one credit card and student loan debt. Both are around 6 grand each.

I actually been saving up and I should be able to pay off one of them within a month or so. Just trying to figure out which one.

For my Student debt, the loans are all through the gov so the interest is low comparatibly. I pay 350 a month, and the interest seems to be around 20 dollars.

For my credit card I have a couple of recurring payments set up for it, and I always pay those off + any one off expenses + the interest of the month. Usually the interest is about 100 dollars.

I know you want to pay off whatever has higher interest rate first, so CC seems like the obvious answer, but if I pay off my student debt, I could then put the 350 I was paying towards the credit card.

Thoughts?

Posts

  • dispatch.odispatch.o Registered User regular
    Paying off the credit card would allow you to put more towards your student loans. The math is the same. Pay off the credit card.

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  • Gabriel_PittGabriel_Pitt (effective against the Irish) Registered User regular
    The obvious answer is the correct one. You're going to be better have without a balance to pay off on your credit while paying down the student loan than the other way around.

  • bowenbowen How you doin'? Registered User regular
    edited June 8
    Conventional wisdom is the credit card because it has the higher interest.

    However convention wisdom doesn't take into account how human beings handle stress and all that, so if one has a smaller interest but a much smaller balance, paying that one off first can actually reinforce good spending habits going forward.

    If your CC's balance is like $10k, but your student loan is $2.5k, maybe pay off the student loan asap instead. If they're nearly 1:1 pay the higher interest one down first.

    bowen on
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  • VanguardVanguard A wretched country of duskRegistered User, __BANNED USERS regular
    Do the credit card. The net impact on your personal finances is greater.

    SkeithSmrtnikEncElvenshae
  • Inquisitor77Inquisitor77 2 x Penny Arcade Fight Club Champion A fixed point in space and timeRegistered User regular
    edited June 9
    It's not just about interest rates. IIRC student loans of the type you have do not allow for early repayment on the principal, so there's no reason to pay more than the expected amount. Paying off credit card debt early, however, will very much impact how much you end up paying over time.

    Pay off the credit card(s) ASAP. Very few types of debt are worse than credit card debt. Payday loans are probably the worst, but credit card debt isn't all that far behind.

    Also, if you've been "saving up", it implies that you have more than enough to pay off the debt already. If possible, I'd strongly consider paying off the credit card debt now and rebuilding your nest egg sooner rather than later. Right now the money in your account is very much of the "pretend" variety. If you run into financial trouble, you'd be better off just starting up new CC debt with a clean slate (i.e., a card with no balance) rather than carrying over that long-term CC debt that is constantly piling up interest over time. This assumes you'd still be keeping enough cash-on-hand (e.g., in your bank account) to do stuff like pay for rent, etc.

    In case no one has said it already: You are a badass for taking care of your finances and paying off these debts. Go stand in front of your bathroom mirror and tell yourself how much of a fucking badass you are.

    Inquisitor77 on
  • L Ron HowardL Ron Howard Registered User regular
    US Federal student loans are at 0% interest until the end of September. And none of those need to be paid for that duration. So if you pay them or not, it doesn't affect anything other than lengthening your duration. So if you spend all that towards your CC which IS charging you interest, you are much better off.

    SmrtnikMugsley
  • mtsmts Dr. Robot King Registered User regular
    Just keep paying the minimum in the student loans. If they actually fix loan forgiveness, one if the conditions is regular payments without any gaps

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  • Pixelated PixiePixelated Pixie Cupcake Sorceress Registered User regular
    mts wrote: »
    Just keep paying the minimum in the student loans. If they actually fix loan forgiveness, one if the conditions is regular payments without any gaps

    But note that the 6 month Covid-19 forbearance for everyone right now still counts toward forgiveness with no gap.

    Mugsley
  • HevachHevach Registered User regular
    Something about credit cards: paying them off increases your spending power.

    Now, I'm not saying pay them off and then go max them out on a new home theater system, I'm saying pay them off because the second you get yourself overextended your check engine light is going to come on and the credit card will at least give you a way to pay for that.

    see317
  • DaenrisDaenris Registered User regular
    Since both your loans are a similar balance, you're definitely better off paying the higher interest one. Sometimes when a lower interest loan has a much smaller balance some people will suggest you're psychologically better off paying the smaller one so you can "snowball" that payment into your larger interest loan. While that might be the case, mathematically you're always better off paying down higher interest debt first. On top of that, some amount of student loan interest is claimable on taxes, so even if the two were equal balance and equal interest I'd say pay off the credit card first.
    US Federal student loans are at 0% interest until the end of September. And none of those need to be paid for that duration. So if you pay them or not, it doesn't affect anything other than lengthening your duration. So if you spend all that towards your CC which IS charging you interest, you are much better off.

    Unfortunately this depends on the loan. I thought this was a blanket thing that applied to all federal student loans. As my loan servicer is happy to tell me "The CARES Act provides relief to all Direct Loans and FFEL program loans owned by the U.S. Department of Education (ED) until September 30, 2020." My wife and I both have federal student loans through the FFEL program, but they are listed as being owned by "Navient Federal Loan Trust" and "PHEAA FRN" and so aren't eligible because they are not owned by the Department of Ed.


  • MugsleyMugsley Registered User regular
    +1 for credit card

    Also, we have a Personal Finance / Financial Literacy Thread . All are invited!

    Elvenshae
  • zepherinzepherin Registered User regular
    The only time that student loans are better to pay off is if you think you may be declaring bankruptcy in the future. Your CC are dischargeable, your student loans are not.

  • KyouguKyougu Registered User regular
    I did like most of you all suggested and paid off the credit card.

    Honestly it felt scary transferring 7k from my savings to my checking and making that payment but now I just have my student loans and I'll be 100% debt free.



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  • MugsleyMugsley Registered User regular
    That is a fantastic achievement! Keep it up!

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