Pay Student Loans Vs. Credit Cards- Highest Interest Rate Loan First?
Posted on | March 9, 2010 | 3 Comments
When deciding which to pay first, a student loan or a credit card- one should always opt to pay the higher interest rate loan first which 9 times out of 10 will be the credit card. Paying off the higher interest rate loan first is always the best decision for several reasons.
Credit cards have many penalties like late fees and interest rate increases for missed or failed payments. If you miss one payment your interest rate may double and you will be charged a late fee on top of that. This means the balance on your card is just going to increase more and more due to one missed payment.
With student loans there is no late fee and no interest increase for a missed payment. Since these loans are through the government they want you to successfully pay them off not be penalized for failing to pay them. Therefore, it is always the best option to pay the credit card before the student loan.
Inevitably both debts will have to be paid but we have all be in situation where we are unsure of which one to pay first because of a bad financial situation. In this case, opt for the credit card in order to avoid the interest increase and late fees.
Author: Sylvia Wayne
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3 Responses to “Pay Student Loans Vs. Credit Cards- Highest Interest Rate Loan First?”
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March 9th, 2010 @ 11:16 am
Just a note that late fees are charged on both federal and private student loans. Your advice about paying the credit cards first is likely sound, but consumers need to ensure that all debts are paid timely to avoid high late fees and negative credit reports. Thank you!!
March 10th, 2010 @ 3:37 pm
This is poor advice. Avoid using absolutes, like “always.” I know for me, if I miss a student loan payment, my rate will increase 2%! This is because I agreed to auto pay my student loans directly from my bank account. Part of the agreement is that I wont pay late, or my rate will revert back to the higher rate. So I don’t think it is accurate to “always pay the higher interest rate debt.” There can be other implications for paying late on your student loans as well.
March 13th, 2010 @ 4:09 am
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