When you are overwhelmed by debt, it is important to be smart in how you pay-off your debt. Two of the most common types of debt facing consumers are student loan debt and credit card debt. Below are a few factors you should consider in deciding which type of debt you should payoff first:
- Interest rate. Most student loans have lower interest rates than the high interest rates on credit cards. For example, it is common for a student loan interest rate to be 3-4% while a credit card company often charges 20-25%.
- Tax deduction. One key advantage to paying off student loan debt is that you can receive a tax deduction for the interest you paid on your student loan over the year.
- Credit score. When you first graduate, your student loan debt can negatively impact your debt-to-income ratio. Why is this important? It is a significant part of your credit score. However, timely paying your credit cards can also improve your credit score.
- Ability to payoff. Paying your student loan typically takes a lot of time. If you can put your extra funds toward your credit card debt and pay it off quickly, it may be wise to take care of those accounts first.
- Dischargeability. If you are considering filing a Chapter 7 or Chapter 13 bankruptcy, it is important to understand that it is difficult to discharge student loans but relatively easy to elimate credit card debt.
In general, you should pay off your debt with the highest interest rate first and work your way down from there, but the above factors should also be considered as well. If you need help with creating a strategy for dealing with your debt, we can help.
The “defender of the little guy,” DeLadurantey Law Office, LLC. handles student loan debt and bankruptcy matters (Chapter 7 and Chapter 13) in Milwaukee, South Milwaukee, West Milwaukee, and Milwaukee County, including the municipalities of Bayside, Brown Deer, Cudahy, Fox Point, Franklin, Glendale, Greendale, Greenfield, Hales Corners, Oak Creek, River Hills, Shorewood, St. Francis, Wauwatosa, West Allis, and Whitefish Bay. The firm also can handle your debt negotiations, debt relief, and mortgage loan modifications. Contact DeLadurantey Law Office, LLC by phone: (414) 377-0518. Like us on Facebook.