Should You Get a Credit Card When Paying Back Student Loans?
If you are one of them nearly 45 million Americans When you suffer from the burden of student loan debt, you may be afraid to dip your toes in the credit card scene for fear of running into even more debt. Or, you may be wondering why using a credit card is good when debit cards do many of the same tasks.
While there is always the risk of credit card debt, getting a credit card can be a wise financial move if you are responsible for your finances and make your credit card payments on time. To help you make your decision, here are some pros and cons of having a credit card before paying off your student loan debt:
Reasons To Repay Student Loans Before Getting A Credit Card
Let’s start with the cons as some of them could destroy your finances if they apply to you. Here are some reasons why you should think twice before getting a credit card.
You are not always that careful with your expenses
If you have a credit card, studies show It’s a lot easier to spend on things you wouldn’t normally spend, especially when you have a significant amount of credit. You could easily accumulate a large amount of credit card debt in addition to yours Student loan debt. This is especially true since credit cards tend to have higher interest rates than student loans.
You are concerned about on-time payments
The use of credit cards can take the focus away from yours Debt settlement strategy. You already have your student loan statement that you need to remember every month. Adding a credit card (or multiple credit cards) often makes this difficult.
You worry if you have the discipline to repay it
When you make every effort to repay your student loan, you develop a degree of financial discipline. Because of this, you are less likely to fall into a debt trap with credit cards while waiting to use them until your loans are paid back. At this point you will be aware how difficult it is to get out of debt.
Reasons To Get A Credit Card When You Owe Student Loans
On the flip side, there are some compelling reasons to open a credit card account too, even with student loan debt. These include:
You want to create a credit history
Credit cards will help along with your student loan history Build up your credit if you use them responsibly. Unlike installment loans (e.g. student debt), credit cards are considered revolving loans. The revolving balance is 30% of your balance FICO credit scoreSo if you pay off your balance regularly, a credit card can improve your ability to get new credit when you need it.
You want perks and benefits
Many credit card companies automatically include things like rental car insurance or travel cancellation insurance. Some have cash back programs or other rewards. All of these benefits vary by card but are widely used. If you avoid interest expense by paying out all of your balance every month, these perks can cost you little to nothing.
You want to keep track of the expenses
Correct use of credit cards will allow you to track your spending habits in ways that cash cannot. A debit card can do the same thing, except that debit cards may not have as many built-in benefits and protections as credit cards.
You learn to be financially responsible
If you can handle a credit card without spending too much and remember to make your payments every month, then you are definitely ready to come up with a plan Aggressively pay off your student loan debt.
Ultimately, the best decision about whether to repay your loans before applying for a credit card depends on your circumstances. That said, here are a few suggestions when you get that magical piece of plastic:
- When you get your first card, use it to make small purchases, such as shopping. For example, buy groceries or gasoline, and then get into the habit of paying it all off at the end of the month.
- Unless your balance is routinely close to zero, consider signing up for Auto Pay, which will automatically debit the minimum monthly payment for your card from your bank account. While it is best to pay for it all Back up every month, a backup is great in case you forget it.
With these tips, you should be well on your way to responsible credit card ownership whether or not you wait to pay off your student loan.
Michael Kitchen contributed to this report.