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Should I Pay Off My Credit Cards Or Student Loans First?

credit-card-or-student-loanAsk 10 doctors their opinion on your health and you're likely to get 10 different answers.

I kept asking myself should I pay off my credit cards or student loans first.

That question ate at me as my finger hovered over the “Pay Now” button of my PayPal bill.

Close to $1,000 dollars was what I wanted to pay on my bill but the question was to who?

I could have easily wiped out an entire student loan that was around $850 dollars or I could have applied it my student loan with the highest APR at 6.8% and had just under $300 dollars remaining after making that payment.

With my finger hovering, I clicked “Pay Now” and applied more than 25% of my debt payment to that dreaded PayPal bill.

Reasons behind my reasoning

Now I think I had pretty sound reasoning behind my logic and I like to think there's always a madness to my method but it simply boiled down to a few simple reasons.

The first fact being that all my student loans have a FIXED interest with the highest one being 6.8%. Since my loans are not private loans those interest rates will not rise or decrease.

They're locked in.

Over time they'll continue to accrue interest but that PayPal bill had an APR of 19.99% or the max rate they can charge.

With an interest rate that high it doesn't take long for the numbers to start compounding and adding on top of the debt mountain I'm already trying to climb down from.

Another reason I decided to go after one of my credit card bills had to do with the fact that student loans aren't forgivable in almost any manner that applies to me and although I have no intentions of filing for bankruptcy but under some circumstance way outside of my control it would probably not work in our favor anyway.

Some have suggested that you could always file for bankruptcy to wipe your consumer debts and take a 7-year penalty but that would be silly for where we currently are based on our consumer debt vs income ratio.

A judge would just look at us and say “You need to find better-paying jobs or put in more hours” and that would be that.

Finally, my undecided reason is that I may actually go back to school and start fresh.

You see I have a degree in Associates Degree in Medical Massage Therapy, a diploma in Medical Assisting, and for a couple of years I was a licensed massage therapist.

That 1 degree, 1 diploma, and LMT license totaled $14,000+ in school loans.

I. Don't. Use. Any. Of. It.

If ever there was a waste of money it was pursuing something I tried to have a passion in but never could make it work no matter how hard I tried.

Sure, I liked helping people feel better and had some really great clients when I was practicing but I was continually bored out of my mind.

Even in my mid 30's I'm not ready to give up on my education and have talked it over with my wife and I may be able to pursue a new career path in something that totally interests me and could open my wife and I up to a whole new financial bracket.

With that in mind I possibly have the option of deferring my student loans as I attend school again and if I'm going back to school I want to go with as little consumer debt as possible.

So what should you do?

Well, that my friend depend's on your current financial state.

Ask yourself the following questions:

Are you or do you want to go back to school?
Are your loans locked in at a fixed interest?
Do your credit card bills have higher interest rates than your student loans?

In my case, I want to go back to school which means possible loan deferments. My current student loans are federal student loans locked in at a fixed interest rate and my credit card bills have variable interest rates that are higher than my student loans.

That's the reason I chose to pay my credit card bill first and will continue to whittle them down before tackling my student loans.

What have you found works best for you when it comes to paying credit card bills or student loans first?

 

About the Author Adam

I'm just a guy looking to build a better life for my family by cleaning up some of our past financial mistakes.

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