How to Be Smart About Credit Card Debt When You Have Student Loans

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Living beyond our means is an epidemic in American society today. Excessive debt is a dream killer, and no one wakes up hoping for a future of struggling to make ends meet. Our rational minds know this.

However, despite the clear negative implications of most debt, it is possible to have debt and thrive financially.

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Healthy Habits Make Happy People

How can you make wise choices about your student loans and credit card debt? First, you need to form healthy habits based on these three cornerstones of financial health:

  • Be responsible. Firmly establish a list of needs versus wants. Do you need a car to get to work? Most likely, yes. Does it need to be a Cadillac or Audi? Probably not.
  • Make a budget and stick to it. This helps you stay consistent and monitor your income and expenses. Knowing your limits is vital for sustained financial health.
  • Learn what you can. You wouldn’t fly a jet without pilot training, so you shouldn’t take someone else’s money without learning about the process. You don’t need to be a certified financial advisor, but you should thoroughly review loan terms and conditions.

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Good Debt Vs. Bad Debt

In an ideal world, we wouldn’t borrow — or have to borrow — money for what we need. Reality isn’t quite as simple. Most Americans don’t have the luxury to live on cash alone. We have to prioritize our debts. Typically, we use two categories: good debt and bad debt.

  • Good debt is any borrowed money that is an investment in the future. Examples of good debt include student loans for a college education, a mortgage, or a small business loan.
  • Bad debt is any borrowed money used for depreciating assets. In other words, if you borrow money for goods or services that lose value, you will accrue bad debt. Examples include cars, clothes or consumable goods, and credit cards.

Related: How I Went From $100,000 in Debt With No Job to Debt-Free in 5 Years

Even though we refer to it as “good debt,” you still want to make sure to follow the three healthy habits.

3 Common Questions About Student Loans and Credit Cards

Navigating terms and conditions of various loans is like crossing the Sahara barefoot. Naturally, borrowers have many questions. Here are answers to three of the most common questions about student loans and credit card debt.

Should I pay off my credit card debt with my student loans?

The short answer: probably not. First, understand the difference between paying off debt and transferring it. You may get a lower interest rate by borrowing a student loan to pay off a credit card balance. However, it just transfers the debt somewhere else. It doesn’t actually relieve the burden.

Second, it is likely in violation of student loan policies. Even if it isn’t expressly illegal, it borders on the unethical. It’s wise to steer clear of this debt management strategy.

Should I make my monthly student loan payment with a credit card?

Paying student loans with credit cards is a resounding no. Risks are higher, and consequences are more stringent for using plastic to pay off your education loans.

You run the risk of lawsuits, trouble discharging the debt in cases of bankruptcy, and much higher, variable interest rates with credit card debt. There are far better and more financially beneficial repayment options for student loans.

Should I get a credit card if I have student loans?

Truthfully, it depends. Many pros and cons complicate this decision. If you are an undisciplined spender or worry about timely payments, you probably want to avoid methods for accruing new debt. If you are interested in establishing a credit history and are financially responsible, it may work in your favor.

The system doesn’t exist to intentionally take advantage of consumers, but loose restrictions and unexpected expenses can quickly damage your credit. No debt management or financial planning strategy is complete without a healthy dose of personal responsibility.

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3 Tips for Managing Your Debts

Frequently, we have a combination of debts, including student loans and credit cards. Here are three tips to manage them effectively:

  1. Make timely payments.
  2. Pay more than the minimum balance.
  3. Consolidate debts if and where possible.

Related: How to Get Out of Debt: 5 Steps Toward Healthier Money Habits

Finding the Balance

Experts estimate the national student loan balance to be in excess of $1.3 trillion and counting. And revolving credit (e.g. credit cards) is more than $900 billion nationally. With these heavy burdens, Americans are walking a dangerous tightrope.

The fix isn’t one-size-fits-all. Each of us must take our finances seriously and follow basic principles for financial health. Asking which types of debt to take and when is an important step. However, each of us must learn to make wise choices and build healthy habits.

What would you add to these tips? How do you maintain healthy finances while paying off student loans?

Let me know with a comment!

About Author

Anum Yoon

Anum Yoon is the founder and editor of the millennial money blog, Current on Currency.

3 Comments

  1. Brock Adams

    Good read Anum. I could not agree more.. I hope that a college education will still continue to be a “good debt” since most of those I interview are not making nearly enough these days to pay back the debt on the loan and sadly, there are not enough good paying jobs for everyone to fill. Everyone on BP knows what opportunity cost are and likewise no one wants to wait 10 years for the payday.

  2. George Cen

    I came out of college with about 50k in student loans. I quickly realized that the longer I hold this debt, the more money (in interest) I will end up paying in total. I knew I had to pay off the loan as fast as possible. I made goals to pay more than the minimum required. Since expenses can fluctuate month by month, my goals were set quarterly. I increased the amount each quarter. When I was falling short of my goal, I spent more time on my “side gig” (for me this was poker). I think alot of times, people set out to pay the minimum amount when they can afford more. On months where they can easily meet the minimum, they view it as excess money and spend it. Continually to increase this goal can help keep people honest and also continually motivate people as their salaries increase.

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