Which to Pay First

Which to Pay First

In response to my last post about what to do with surplus cash, an insightful reader asked whether it is best to pay off credit cards first or student loans.  Definitely, pay the cards first.  The most onerous student loan debt carries a lower interest rate than the least burdensome credit card.  Pay the cards off first, starting with those that charge the highest rates.  Only then should you turn to the student loans.

Student loans, burdensome as they are, often carry attractive terms.  In such cases you might consider investing the surplus cash and using the income from those investments to meet the regular student loan payments.  This way, the student loan payments cease to burden your everyday income, presumably from your job, and possibly even earn a little extra.  If you pay off the student debt, you do, of course, get relief, but no chance of that little extra from your investments.  With credit cards, the cost of borrowing is so high that there is no chance investing what would pay them off can earn more or even enough to cover the cost.  Best to use the surplus cash to pay off the cards as completely as you possibly can.

This was a good question, I look forward to others from other readers. 

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