If you're managing both credit card debt and student loans, you may be wondering which one to tackle first. The right approach depends on interest rates, financial goals, and available repayment options.

In this edition of The Financial Zown, we break down how to prioritize your debt payments for the best financial outcome.

1. Compare Interest Rates—The #1 Factor

• Credit cards usually have much higher interest rates (15-25% or more).

• Student loans typically carry lower interest rates (3-7% for federal loans, sometimes higher for private loans).

If your credit card interest rate is significantly higher than your student loan rate, paying off credit cards first will save you more money in the long run.

2. Always Pay at Least the Minimum on Both

Missing payments on any debt can damage your credit score and lead to late fees or penalties.

✔ Make sure to pay at least the minimum on both credit cards and student loans every month.
✔ Focus extra payments on the debt that costs you the most in interest.

3. Consider Your Financial Stability

Your income and financial flexibility can also influence your decision:

• Stable income and an emergency fund? Tackling high-interest credit card debt first is often the smartest move.

• Struggling financially? Federal student loans may offer deferment, forbearance, or income-driven repayment plans, which credit cards do not.

Since student loans offer more repayment flexibility, focusing on credit card debt first is often the better strategy.

4. How Debt Impacts Your Credit Score

• Credit card debt hurts more – High balances increase your credit utilization ratio, a major factor in your credit score.

• Paying off credit cards first can boost your score – Lower utilization means a better credit rating.

• Student loans are installment debt – They have less impact on your score compared to revolving credit card balances.

If improving your credit score is a priority, paying off credit card balances first is the better choice.

5. Tax Benefits of Student Loans

• Student loan interest is tax-deductible (up to $2,500 per year, depending on income).

• Credit card interest is NOT tax-deductible.

This makes student loans less urgent to pay off compared to high-interest credit card debt.

6. Debt Snowball vs. Debt Avalanche—Which Strategy is Right for You?

• Debt Avalanche – Pay off the highest interest debt first to minimize total interest paid (usually credit cards).

• Debt Snowball – Pay off smallest balances first for quick wins and motivation.

For most people, the debt avalanche method saves the most money, making credit card payoff the top priority.

Final Thoughts—Should You Pay Off Credit Cards or Student Loans First?

Pay Off Credit Cards First If:

✔ Your credit card interest rate is significantly higher than your student loan rate.
✔ You want to improve your credit score by lowering credit utilization.
✔ Your student loans have flexible repayment options that allow you to focus on high-interest debt first.

Pay Off Student Loans First If:

✔ Your student loan interest rate is higher than your credit card rate (uncommon).
✔ You don’t have any high-interest debt left.
✔ You want to become completely debt-free faster.

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