People around the world beg the question, should I pay off my credit cards or my student loans first? This is not only a great question, but a well debated one. Some would argue for the credit card for certain reasons and vice versa. Instead of taking a specific response one way or another, we’ve decided to provide a plan to help you decide which one is best. Please read along and you too can create a plan that fits your situation.

Which has the highest balance: Here’s where the shoe meets the ground, you need to know this basic piece of information before you can began determining anything regarding your loan. It’s simple, pay the one off first that has the lowest balance and work on the other later. However, if you’re actively working on building credit and need to keep your credit cards handy for credit purposes, maybe consider paying off the student loans. Another thing to keep in mind is student loans are mostly deferred until college graduation so if you’re a recent college grad, your student loans can help you build credit as well.

Credit Card

Credit Card

How much money do you have: Another important question to ask is how much income is available to pay towards the loans or the credit cards? Without income, you can’t even start trying to figure out which one to pay off because you have no money. This reason is particularly important because, If you have a significant salary and you can quickly pay down student loans, which will almost always be higher than credit cards, do so. If income is not so abundant, I would suggest paying the credit cards off first then focusing on the student loans next. Once the income increases, consider paying down the student debt. Also, take a look at your savings account. If you’ve been great at saving money over time and have enough to pay the balance of the student loan, you could use your savings to eliminate the student loan debt.

Highest Interest Rate: Our last thing to consider when determining if you should pay off credit cards or student loans first is the interest rate you’ll be tasked with paying. The higher the interest rate, the higher the payment and the longer the payment terms usually. Determining the interest rate in most instances can be more important than the actual loan amount itself. For example, you may have one credit card for $5,000 and one student loan for $10,000. Let’s say the interest rate on your credit card is 19%, which is really high and your student loan is set at 4%. Even though your student loan is for $10,000, you should consider paying the credit card off first because the interest on the card is through the roof.

Overall, when determining which to pay off first, I would recommend using these bullet points. There’s almost no ways of surefire method of determining which one to pay first but if you take your time, do the math and determine what makes sense, I guarantee you’ll make a great decision.