Student Loans vs. Other Debt: Which Is the Smartest to Hold Long-Term?
Written by
Rebecca Neubauer
Edited by
Maria Concepcion
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If you carry different types of debt, like student loans, credit card debt, and a mortgage, it can be difficult to decide which to pay off first and what to hold long-term. You will save the most money by paying your debts in order of highest to lowest interest rate. There are also other factors to consider, such as credit score impact, repayment and refinancing flexibility, and tax benefits.
Student Loans
Student loans are often considered a smarter choice for carrying long-term debt compared to other forms of debt. They typically offer lower interest rates and more flexible repayment terms, making them a more manageable financial burden to carry for years.
In times of low or no income, you can defer payments on government-held student loans without damaging your credit score. Student loan forgiveness is also a potential benefit for those in certain public service professions.
Credit Card Debt
On the other hand, credit card debt is the worst kind of debt to keep in the long term. The interest rates on credit card debt can reach double digits, often in the 20%+ range, resulting in substantial interest payments if carried over the long term.
While balance transfers to low or no-interest credit cards is an option, this is not a long-term solution to paying off credit card debt. Additionally, carrying high credit card balances can negatively impact your credit score, which will affect your ability to get good rates on other loans such as mortgages or car notes.
Mortgages
Mortgage rates can vary significantly, depending on the interest rates in place when you purchased your house. In the current market, mortgages typically have lower interest rates compared to credit card debt but higher rates than student loans.
However, the potential for property appreciation and tax benefits associated with paying mortgage interest can make it a relatively smart form of long-term debt, especially compared to credit card debt. You can also refinance your mortgage when interest rates get lower, allowing you to pay less interest each month, and overall, on your home loan. Many homeowners carry their mortgage debt for the full 30-year term of their loan.
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