Which is worse, student loans or credit cards?
Many people starting out their professional lives are hounded by two forms of debt: student loans and credit cards. Often, this is the result of getting an education and setting up a household. Once a person is established, however, he or she needs to get these debts paid off so that they can move on with the rest of their lives.Deciding which debt to work on first, however, is tricky. While most people pay a higher interest rate on their credit cards than they do on their student loans, student loans are a more dangerous type of debt. In the event that a person defaults on his or her credit cards, all that can really happen is that the debt will be sold to a collection agency that will add hundreds of dollars’ of fees and ruin the borrower’s credit score. Defaulting on a student loan, however, can result in thousands of dollars worth of fees being added to the loan balance. To make matters worse, it’s possible for a student loan company or the government to take a portion of every paycheck, and garnish tax refunds and Social Security checks until the debt is paid.Because the consequences of defaulting on a student loan are so severe, many former students decide to make their student loans a priority over their credit cards. They reason that as soon as the student loans are paid off, they’ll be able to quickly pay off their credit cards. This can be a sound strategy if a person is concerned that they will not be able to bring in enough income in the future to pay off their student loan debts.If a person owes a relatively small amount in student loans, however, then it might be a better strategy to pay off their credit cards first. After all, they can save thousands of dollars over several years by getting their credit card debt paid off as fast as possible.A better option than both of those plans, however, is to pay off both debts with a debt consolidation loan. This will reset the debt to a low interest rate, and give a person a steady monthly payment. As he or she advances in their career, they’ll be able to pay more towards the debt and get out of the loan even faster. Most importantly, they won’t have to choose which debt to pay off first.