Financial Planning
July 6, 2022

Is it better to use credit cards or student loans?

Student loans almost always offer much lower interest rates than credit cards, making them the best option.

Student life can vary widely, from tuition to books to living expenses, and many of us cover the costs with different forms of credit and loans

Which is better: using a credit card or taking out a student loan?

Student loans are typically offered at rates significantly lower than credit cards. That’s a good reason to opt for low-interest loans over credit cards. 

In fact, government-backed loans are regulated to keep their interest rates low. Federal student loans for undergraduates currently charge an interest rate of 4.99% for the 2022-23 school year. Federal loans for graduate students carry interest rates of 6.54% for unsubsidized loans (and 7.54% for PLUS loans).

In contrast, the average interest rate on credit cards is currently 18.97% on new offers and 14.56% on existing accounts. That’s a significant difference. Any expenses that can be covered by a student loan should be assigned to that loan.

While student loans are primarily used to cover tuition and fees, they can also be used for other expenses associated with college. The amount you can borrow for living expenses varies from school to school, following your college’s certified cost of attendance, or COA.

When should you use a credit card in college?

Credit cards can still be helpful in college, financing travel, clothing and entertainment costs that student loans might not cover. 

Whenever you use a card responsibly, even in college, you’ll also build a positive payment history and a healthy credit score, improving your eligibility for other loans and credit lines. 

Should I use my credit card to pay my student loan?

The short answer is no. Federal student loans don’t allow you to pay your student loan off with a credit card directly. Instead, you’d have to use a third-party service and likely incur fees.

But you’ll also pay your credit card’s high interest rate, which only adds to your debt, and you’ll add to your credit utilization, which can significantly impact your credit score. 

Recommended Readings:

3 reasons to use personal loans to pay off debt

4 ways to pay off your student loans faster

Chayla Soden
Content Writer
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