Is it Better to Pay Off Student Loans or Credit Card Debt First?

Julissa Treviño Updated on May 19, 2019

Though student loan debt has now surpassed credit card debt, many Americans have the challenge of dealing with both.

The average college graduate now has more than $37,000 in outstanding student loan debt, and many people of those same people hold thousands of dollars in credit card debt as well.

NSLU-article-title-bg-proven-strategy-reduce-debt.jpg

If you’re a similar position—facing the challenge of paying off both student loan debt and credit card debt—you’ve probably wondered how you can prioritize which type of debt to pay off first and stay current on both bills.

The short answer is that paying off credit card debt should be your first priority, but there are several factors to consider.

Understanding your debt

Student loan debt is typically considered “good debt” because it’s an investment in your future and because it helps you build credit.

On the other hand, credit card debt is considered “bad debt.” It usually comes with high interest rates and it doesn’t benefit you in the long run. The current average interest rate on credit cards is 16.15%—compared to 4.45% on undergraduate direct subsidized and unsubsidized Stafford loans.

The interest paid on your student loans is also usually tax deductible.

How to prioritize debt payment

Since your loans with higher interest rates will likely be your credit cards, pay those off first, focusing on the card with the highest rate first. This will save you from paying more in interest over long run.

Once your highest-interest card is paid off, make that same payment to the card with the next-highest interest rate. Continue the process until all the credit card debt is paid. And in the meantime, limit your use of credit cards, which will help improve your credit score and keep your debt from increasing.

Another important reason to pay off credit card debt first is that a substantial student loan won’t directly damage your credit score, but a high credit card balance will.

That’s because a student loan is an installment loan—a set amount that’s paid back with regular scheduled payments. Credit card debt is revolving credit, which is not issued at a specific amount. (Though you will have a limit on what you can borrow on your credit card, the amount you spend is up to you.)

A factor that impacts your credit score is called credit utilization ratio, which is the ratio between your credit card balance and your credit limit. Student loans are not factored into this ratio.

New call-to-action

Stay current on student loan payments

As you’re paying down credit card debt, stay current on your student loan payments. Those regular payments over time show that you are responsible in managing money, which increases your credit score.

On the other hand, if you ignore your payment obligation for student loans, you could go into default, which would add fees, create credit problems, and possibly result in lawsuits.

Tackle student loan debt efficiently

You can take a similar approach to paying off student loan debt as you do with credit cards. Tackle the highest-interest loan first and pay extra toward that debt. But if you’re already struggling with staying current on all your debt, even paying a little extra each month can seem impossible.

If that’s the case, consider some smart strategies to help you pay off your student loans faster:

You can also refinance your student loan debt. By refinancing to a lower interest rate at the same or shorter term, a larger portion of your payment will go to the principal to pay down your loan faster. Learn more to find out if refinancing if for you.

About the Author
Julissa Treviño

Julissa Treviño is a writer and journalist based in Texas. Her work has appeared in BBC Future, CityLab, Columbia Journalism Review, The Dallas Morning News, Racked, Teen Vogue and other publications. She enjoys traveling, playing with makeup, biking and trying new food. Follow her @JulissaTrevino. Read more by Julissa Treviño

Refinance and Save Today With These Lenders

#1 - Comet Recommended View More Details

Works with 275+ not-for-profit community lenders for higher approval chances

  • APR: 2.53% - 9.06%
  • Minimum credit score: 660
  • Refinance up to $300K
View More Details
Visit LendKey View Loan Disclosure

LendKey operates student loan programs for over 275 not-for-profit and community lenders across the country. By partnering with these lenders, LendKey is able to give consumers direct access to the best rates available from the most borrower friendly institutions. As the servicer of all loans obtained through its platform, you can rest easy knowing your personal information will be safe and that the best customer service team will be ready to answer your questions from application until your final payment.

LendKey Student Loan Refinance review

  • Lightning fast rate check - 2-minute rate check with no impact on your credit score
  • More lenders, more options - see the best offers from over 275 not-for-profit and community lenders for higher approval chances
  • Life of loan relationship - With LendKey, your personal information will never be sent or passed on to third parties. Their customer service team is with you from the moment you land on their website until you've completely repaid your loan.
  • Unmatched benefits- Community lenders put people over profits and offer unique benefits like cosigner release after 12 on-time payments, interest only repayment options to keep monthly payments low, the largest unemployment protection period in the market, and more.

Get a personalized quote from LendKey now.

#2 View More Details

Offers unemployment protection and career/coaching/networking

  • APR: 2.490% - 8.074%
  • Minimum credit score: 650
  • Refinance up to 100% of student debt
View More Details
Visit SoFi View Loan Disclosure

SoFi, which stands for “Social Finance,” was created by a group of Stanford business students who found themselves with a mountain of debt after graduation. They set out to change the student loan industry and help borrowers like themselves to get lower interest rates. SoFi has some of the lowest interest rates and, unlike the other lenders we reviewed, it has no maximum amount you can finance. However, Nevada residents can’t currently refinance with SoFi. Minimum loan balances are higher in Arizona, Massachusetts and Pennsylvania due to state laws. Additional state restrictions may apply.

SoFi Student Loan Refinancing Review

  • Low interest rates - For well-qualified borrowers, SoFi offers some of the lowest rates we have found.
  • Strong customer service - It has more than 350 customer service reps available to help applicants through process.
  • Career coaching and networking - Perks include career services representatives who can help you find a job or negotiate a higher salary. SoFi also hosts networking events, happy hours and educational lectures on topics like buying a home in major cities around the country.
  • Unemployment protection - Borrowers who lose their jobs through no fault of their own may apply for Unemployment Protection. If approved, SoFi will suspend their monthly SoFi loan payments and provide job placement assistance during the forbearance period. These benefits are offered in three month increments, and are capped at 12 months, in aggregate, over the life of the loan. Note that interest will still accrue while loans are in forbearance.

Find out what interest rate SoFi can offer you here.

#3 View More Details

For every loan they fund, they contribute to the education of a child in need

  • APR: 2.48% - 6.25%
  • Minimum credit score: 660
  • Refinance up to $500K
View More Details
Visit CommonBond View Loan Disclosure

CommonBond was founded in 2011 by three MBA graduates from the University of Pennsylvania’s Wharton School who wanted to help their peers escape from high-interest student loan debt. Its original focus was on grad students, but it has since expanded to cover undergrads as well.

Of all the companies we reviewed, CommonBond has some of the best customer service. The company prides itself on being easy to reach by email, phone, or live chat. It offers networking events, expert panels, insider newsletters, and even has a program help borrowers who lose their jobs to find new ones. CommonBond also makes you feel good about choosing to refinance with them by donating money to an education nonprofit for each loan they write.

CommonBond Student Loan Refinance review

  • Unemployment protections - If you lose your job or decide to go back to school, you can delay your payments for up to 24 months.
  • Social promise - For every loan they fund, they also contribute to the education of a child in need.
  • Hybrid loan option - Offerings include a 10-year hybrid loan with fixed interest for the first five years, and variable interest for the final five.
  • Referral bonus - For every friend you refer who refinances their loans with CommonBond, you’ll earn a $200 cash bonus.
  • Qualification - Borrowers must have graduated at least 2 years prior if they want to apply without a co-signer. And borrowers in 6 states – Idaho, Louisiana, Mississippi, Nevada, South Dakota, and Vermont – cannot currently refinance through CommonBond.

Get a personalized review of your refinancing options with CommonBond today.

#4 View More Details

Earnest empowers people with the financial captial they need to live better lives.

  • APR: 2.49% - 7.89%
  • Minimum credit score: 650
  • Refinance up to $500K
View More Details
Visit Earnest View Loan Disclosure

Using technology, data, and design to build affordable products, Earnest's lending products are built for a new generation seeking to reach life's milestones. The company understands every applicant's unique financial story to offer the lowest possible rates and radically flexible loan options for living life.

  • Commitment-free 2 minute rate check
  • Client Happiness can be reached via in app messaging, email, and phone 
  • No fees for origination, prepayment, or loan disbursement
  • Flexible terms let you pick your exact monthly payment or switch between fixed and variable rates
  • Skip a payment and make it up later
  • Online dashboard is designed to make it easy to apply for and manage your loan

Click here to apply with Earnest and to see how much you can save.

#5 View More Details

Operates in all 50 states; 2nd largest student loan refinancing lender

  • APR: 2.50% - 7.02%
  • Minimum credit score: 660
  • No refinancing amount maximum
View More Details
Visit Laurel Road View Loan Disclosure

Laurel Road is a national online lender with customers in all 50 states, the District of Columbia, and Puerto Rico. Many of our non-bank competitors are not able to lend in all 50 states.Laurel Road has grown to be the second largest player in the student loan refinancing space in large part because of our reputation as the go-to low rate provider.

Laurel Road Student Loan Refinance Review

  • National reach - Online lender that is available in all 50 US states, the District of Columbia and Puerto Rico.
  • No fees & the lowest rates in the space - Laurel Road is the most transparent about the rates they provide customers, and offer the lowest rates where it counts. Our customers will save more than $20,000 over the life of their loans on average. 
  • Customer service reputation - Laurel Road's customer service representatives are no rookies. With 19 years of experience on average, Laurel Road’s Customer Service team delivers an experience that is best in the industry. They work to build meaningful, life-long relationships with our valued customers to improve their overall financial wellness.
  • The stability & security of a bank - They are a division of Darien Rowayton Bank, a stable and secure FDIC-insured bank, regulated by the FDIC and the Connecticut Department of Banking.

Get your personalized, pre-approved rates in less than 5 minutes.

#6 View More Details

Special offers for medical resident and fellow refinance products

  • APR: 3.10% - 7.84%
  • Minimum credit score: 670 w/cosigner
  • Refinance up to $350K
View More Details
Visit Splash View Loan Disclosure

Splash Financial is a leader in student loan refinancing with new rates as low as 3.25% fixed APR which can save you tens of thousands of dollars over the life of your loans. No application or origination fees and no prepayment penalties. Splash Financial is in all 50 states and is intensely focused on customer service. Splash Financial is also one of the few companies that offers a great medical resident and fellow refinance product. You can check your rate with Splash in just minutes.

  • Low interest rates – especially for graduate students
  • No application or origination fees. No prepayment penalties.
  • Co-signer release program - you can apply for a cosigner release form your loan after 12 months of on-time payments
  • Specialty product for doctors in training with low monthly payment

Click here to see more of Splash's offerings and to see how you can save money.

Comments

I reduced my student loan payment by $152 per month, by refinancing thru Nitro:

Save Money Now