Should you get a credit card, if you pay student loans?
If you are suffering from student loan debt, like a staggering 40 million Americans, then you may be afraid of plunging into the credit card scene for fear of even more debt. Or you may simply wonder what is the point of using a credit card when debit cards do many of the same things.
Although there is always the threat of credit card debt, if you are responsible for your finances and make credit card payments on time, getting a credit card can be a reasonable financial step. Not only is it desirable to adapt to using a credit card responsibly, but it can also help you build your credit.
To help you make your decision, here are some pros and cons of getting a credit card to pay off a student loan debt:
Reasons why you must pay your loans before you get a card
1. You do not care about your expenses. If you have a credit card, research shows that it is much easier to spend on something that normally would not have, especially if you have a substantial balance. You can easily get credit card debt in addition to student loan debt. The average APR credit card throughout the country is about 15%, while student loans are much lower.
2. You are worried about timely payment. Using credit cards can divert attention from your debt repayment strategy. You already have one bill to remember every month: your bill for a student account. Sometimes adding to a credit card or a few credit cards makes it more difficult.
3. You have yet to learn discipline. When you fulfill all efforts to repay student loans, you develop a level of financial discipline. Because of this, you will be less likely to get into a debt trap with credit cards if you wait to use them until your loans are repaid, because you will know how difficult it is to get out of debt.
Reasons why you should not pay your loans before getting a credit card
Continuing the list, here are the positive sides of getting a credit card:
4. You want to create a credit history. Credit cards, along with your student loan history, help build your credit if you use them responsibly. Credit cards are considered to be a revolving loan (without a predetermined loan or repayment schedule), as opposed to student loans, which are considered to be installment loans (with a fixed balance to return to a specific time). A revolving loan and how you use it is 30% of your FICO credit score, so it is important to pay the balance monthly.
5. You want to track expenses. Credit cards, when used properly, can help you keep track of your spending habits in such a way that cash use cannot. A debit card can do the same, except for debit cards, there may not be so many built-in benefits and protections as credit cards.
6. You need free benefits and benefits. Speaking of built-in credit card protection, many credit card companies automatically include such things as car rental insurance or travel insurance. Types and amounts of protection vary by card, but they are quite common in all types of credit cards.
7. You learn to be financially responsible. If you can process a credit card, and not overspend, and do not forget to make your payments every month, then you are certainly ready to make a plan to aggressively pay off student loans.
Ultimately, the choice of whether you should pay off your loans before applying for a credit card depends only on you.
When you get your first card, use it for small purchases, for example, go to a grocery store or get gas so you are used to using it and paying for it in a timely manner.
It is also wise to set up your credit card for automatic minimum payment. Although we strongly recommend fully paying off your credit card every month, automatic backups are excellent if you forgot to pay.
Remember that your payment history is 35% of your credit score, so first of all, make sure that you always pay your credit card on time every time.
With these tips, you should be on the path to responsible card ownership, regardless of whether you wait for your student loans to pay off to apply for them.
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