With the economy still recovering, many people are still struggling to make ends meet. One way that people have been able to save money has been by paying off their student loans and lowering their credit card interests rates. This article is a breakdown of whether or not it is actually worth it to pay off your student loans in order to lower your interest rates on credit cards.
What is student loan debt?
Student loan debt is a large amount of debt that college students take on after receiving their degree. It is the second largest type of debt in the United States, following mortgages.
Student loan debt is the second largest cause of personal debt in America. The average American family carries $37,000 of student loan debt. Student loans are typically issued with an interest rate of 8% to 10%, but the rates can be lowered significantly with a co-signer or other options.
How much are the interest rates on student loans?
Student loans are generally cheaper than credit cards and pay a much lower interest rate. However, they can be very expensive and overwhelming to pay off if you do not have the money. If you have any other debts, you should start paying them first because student loans are discharged after a long time of on-time payments.
The interest rates on student loans vary depending on the lender, the amount borrowed and when it’s paid in. Keep in mind that the interest rates for federal loans are typically lower than private loans. As a rough estimate, you might be paying 7% to 10% interest rates on student loans. Credit cards typically charge a variable rate of 20%, so that means if you can have your student loan payments automatically withdrawn from any bank account you have, you’ll pay less in interest over time.
Benefits of paying off your loans vs. getting a lower interest rate on credit cards
When you are ready to pay off your loans, the best option is to contact your student loan company and ask if you qualify for a payment plan. Some lenders offer interest-free or low-interest college loans. With these types of loans, you can save thousands of dollars on interest payments when compared with credit card debt.
There are many benefits to paying off your student loans as opposed to getting a lower interest rate on your credit card. One benefit of paying off your loans is that you are able to deduct the amount of money you pay in interest every year, which lowers your taxable income and reduces your tax burden. You also avoid the risk associated with credit card debt, including high interest rates and late fees.
Pros and cons of each approach to paying off loans
A pro would be that the interest rate is reduced. A con would be that the payoff amount will increase. If you are not planning on using your credit card, then paying off your student loans in this way is most likely not worth it to you.
Using a formula that includes the amount you owe, your interest rate, and how long you want to pay it off will make it easier for you to choose which approach works best for you. You can also think about which option will put you in the best spot for the future.
Conclusion
If you want to pay off your student loans and lower your credit card interest rates, you should consider using a debt consolidation loan. This type of loan allows you to reduce the number of payments that you owe on all of your student loans, plus it provides you with a smaller monthly payment.
There are many different things to consider when trying to pay off your student loans, such as the interest rate of your student loan versus your credit card. If you want to lower your interest rates, it is important to keep track of all the fees associated with using a credit card. Some cards may have higher interest rates than others and those that charge a monthly fee may have other fees that can be avoided by choosing a different option.