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Here's the 'most basic rule of thumb' when it comes to paying off your debt, according to an expert
When you have both credit card and student loan debt, it's tough to choose which one to pay off first. But according to Bruce McClary, a spokesman for the NFCC, there's a special rule.
If the coronavirus pandemic has made you shift your financial priorities for the next several months, you're one of many who is likely focusing more on building an emergency savings fund than paying off debt.
But when the uncertainty subsides, you'll one day be ready to think long-term again. Once you're ready to pay off debt for good, you should be aware that there is actually a rule some abide by that can make it far less daunting.
Select asked Bruce McClary, a spokesman for the National Foundation for Credit Counseling (NFCC), about what debt you should pay off first when you have both credit card debt and student loan debt. Here's what he had to say.
Here's the 'most basic rule of thumb'
If you're wondering how to strategize long-term debt management, McClary says, "The most basic rule of thumb is: What debt is costing you more in the long-term?"
To answer this, consider the interest rate on your credit card and the interest rate on your student loan.
Because credit card debt, by nature, is most likely the highest interest debt that you're paying, McClary suggests paying that off first if you are someone who carries a balance on your card from month to month. As the credit card debt is higher interest and you carry a large balance on it, that debt is usually costing you more than your student loans.
"Get that out of the way," he says. "Pay those balances down [and] find a way to accelerate the repayment of that debt."
Of course, proponents of the debt snowball method argue that paying off the lowest balance is actually more helpful than focusing on the highest APR. But it all comes down to what motivates you. If saving on interest encourages you to keep going, then McClary's rule of thumb will probably work.
How a balance transfer card may help you
For those with good or excellent credit, consider transferring your debt on a high interest credit card to a balance transfer card that offers an introductory period of zero interest.
The Citi Simplicity® Card offers 0% intro APR for 21 months on balance transfers from date of first transfer (after, 18.99% - 29.74% variable APR; balance transfers must be completed within four months of account opening). There is an introductory balance transfer fee of 3% or $5, whichever is greater for transfers completed within the first 4 months of account opening. After that, your fee will be 5% of each transfer (minimum $5).
And, for those with fair or average credit, the Aspire Platinum Mastercard® offers 0% interest for the first six months on balance transfers (after, 8.15% to 18.00% variable APR).
Once your high-interest credit card debt is transferred, make sure to pay it off during the promotional interest-free period to take full advantage of the balance transfer card.
And once your credit card debt is more under control, you can work on charging only what you know you can pay off in full each month. That way you'll be less likely to ever again carry a balance with high interest. If you can pay your balance off in full and on time each month, you won't ever have to pay a dime in interest and you can then focus your attention entirely on paying down your student loan debt.
"You can have your cake and eat it, too," McClary says. "It's not an either-or situation. You get to manage both more effectively if you take on your credit card debt [first]." Then, you pay it off and "get it out of the way."
Information about the Aspire Platinum Mastercard® and Citi Simplicity® Card has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.