If you're trying to get out of debt, many experts note that you need to tackle your credit card debt first. The reasoning here is that cards often have interest rates around 16 percent, which is higher than some of your other loans. If that interest continues to accrue, you wind up further into debt.
For example, one financial planner said that she had a client who owed $25,000 on a credit card and 10 times that much — $250,000 — in student loans. The client wanted to work on the student loan debt first since it was bigger, but the planner wanted to focus on the credit card debt.
This whole situation raised a lot of red flags. One was that the person's lifestyle did not match up with his or her actual income. That could produce more debt and future problems. It also meant the $25,000 may take a long time to pay off, and it had an interest rate that was four times what the client was paying for the student loan debt.
Essentially, the client didn't have the money to pay off all of the debt and was spending far too much. That caused high interest rates to add up every month, eradicating much of the progress that was made toward becoming debt-free. By getting rid of the credit card debt and those high interest rates, it freed up more of the client's money on a monthly basis to work on the student loan debt.
Everyone makes financial mistakes from time to time. Taking out too much in student loans or spending too much on credit cards can sound attractive until it's time to pay it off. If you find yourself facing these issues, rather than lamenting the situation, understand that these financial mistakes can be corrected. Look into all of the legal options that you have and what your best course of action may be.
Source: MoneyTips, "Prioritize Credit Card Debt Over Other Loans," Shaun Plum, accessed Dec. 30, 2016