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Which Debts Should You Pay Off First — Credit Cards or Student Loans?

Sep 8, 2023

Having more than one type of debt is common, and that’s especially true once you graduate from college and start your first “real job.” You may have credit card debt, an auto loan, and a mortgage payment to make once you buy your first home. It’s also common to have other random debts to cover, including student loans.

If you’re like many who took out loans during college, you will likely be paying them off after you graduate. In fact, 82% of students who borrowed loans expect to be making payments post-graduation, according to a recent College Ave Student Loans survey.  

That said, you’ll want to make sure you’re balancing debt repayment with your savings goals along the way. 

You’ll also want to make sure you’re paying down debts in the optimal order, or in a way that will help you save the most money on interest as possible while aligning with your goals. Which debts should you pay off first? Here’s a rundown of how to get the best results:

1. Pay Off High-Interest Debts 

No matter which types of debt you have, credit card debt should be your first priority. Why? Because credit card debt is likely the most expensive debt you have by far.

Federal Reserve data shows the average credit card interest rate on accounts assessed interest came in at around 22% as of May 2023, yet your credit card could easily be charging higher rates than the average. 

To save as much money as possible, you should strive to pay as much as you can toward high-interest credit card bills each month. You can also pay down credit card debt faster with the help of a debt consolidation loan or a 0% APR balance transfer credit card.

2. Other Unsecured Debts

Other unsecured debts like personal loan debt should come next in the debt payoff pecking order. After all, unsecured debts tend to have higher interest rates than secured debts like auto loans. In fact, the Federal Reserve also reported that the average interest rate on a 24-month personal loan came in at 11.48% as of May 2023, compared to the average rate of 7.81% on a 60-month auto loan.

Ideally, you’ll start paying more toward personal loan debt and other unsecured debts after all credit card debt is entirely paid off, although you should make at least the minimum payment on all your bills throughout the entire process.

3. Next Up, Student Loans

The next debt you’ll want to tackle is your student loans. I suggest focusing on these loans after other unsecured debts, since federal student loans (and many private student loans) come with low fixed interest rates and monthly payments that will not change over time. If you have federal student loans, you may even want to look into income-driven repayment plans. 

If you’re hoping to pay down student loans faster or just want to save money on interest, you can also consider refinancing your student loans to get a shorter repayment timeline, a lower monthly payment, or both. Just remember that refinancing federal student loans can mean losing access to income-driven repayment plans and federal protections like deferment and forbearance.

4. Remaining Debt

Once you have paid off or substantially paid down all your other debts, you can focus your efforts on secured debts you have like mortgage loans and auto loans. These debts should be dealt with last since they are secured with collateral and tend to offer lower interest rates as a result. For example, you can consider paying more than the minimum on your mortgage, a car loan, or both until they’re paid off completely. 

Then again, you may want to pay off debts with extremely low interest rates as slowly as possible to free up more cash flow for living expenses and investments. If you took out a mortgage in January of 2021 when the average interest rate on a 30-year, fixed rate home loan was as low as 2.65%, for example, it makes sense to make the minimum payment on that debt and invest your extra cash instead.

Other Financial Considerations

It’s important to make sure you balance debt repayment with other financial considerations. After all, focusing too much on debt repayment early in life can leave you behind when it comes to investing for retirement or saving up for a first home.

While you’ll want to eliminate credit card debt and other high-interest debts as quickly as you can, even if you have to stop saving and investing for a while, you can pay down student loan debt and secured debts at a slower pace while saving and investing for the future along the way.

Finally, make sure you have adequate emergency savings throughout your entire debt payoff journey, or that you begin saving for emergencies as soon as you can. Without a fully funded emergency fund, you can end up relying on credit cards and other loans to get by and ruin your debt payoff progress in the process.

How much should you save? While most experts recommend having an emergency fund that can cover three to six months of expenses, it’s okay to start small if you have to.


Try saving a few hundred dollars per month until you have a few thousand saved, then work toward saving up at least three months of expenses over time.

Final Thoughts

Having more than one type of debt is how it works for most people, especially when you’re young and in the early stages of your career. When it comes to paying it off, however, you’ll want to make sure you have a concrete plan that can help you reduce interest charges and get where you want to be. 

Focusing on credit card debt and other unsecured debts first always makes sense, since these debts aren’t secured by an asset and tend to charge much higher interest rates. You can focus on student loans next, followed by other secured debts you have like a home loan or car loan.

In the meantime, make sure you have an adequate emergency fund and invest in it for retirement. After all, debt won’t last forever if you’re serious about repayment, and saving and investing early can help you benefit from compound interest and avoid using credit cards for surprise expenses. Creating a budget to track these factors is your best bet.

If you need help creating one, or simply don’t know where to start, use this budget worksheet as your guide – you’ll reach financial freedom in no time. 

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