It’s no secret that today’s generation of millenials is saddled with student loan burdens from higher education. There is no end in sight for many, who are saddled with $100K+ in debt for attending undergraduate and graduate degree programs. I personally have a few friends who left undergrad with $50K+ of debt from attending expensive liberal arts colleges, and I don’t envy their financial position.
The classic personal finance advice is to save, save, save if you are in this situation. Yes, you absolutely need to pay off debt since it is an emergency, but it doesn’t mean you have to forgo other luxuries in your life, like taking a vacation. In fact, I would argue that people who make monthly minimum payments on student loans are in a great position to acquire additional credit to build up credit card point balances for travel and vacations.
If you have student loan debt, you are a top contender from a bank’s perspective for a variety of reasons:
- Payment History (35%): Those in the unfortunate situation of having lots of student loan will have a make a large sum of payments over time. Banks love this behavior and will reward you with more credit.
- Mix of Credit (10%): A bank may penalize those who only have credit cards or revolving accounts. Having an installment loan on your credit report shows you are paying down an asset that takes much time and discipline to eliminate.
- Length of Credit History (15%): If you started paying off your student loans six months after finishing school, you likely are still paying these off many years later. The banks look upon a long credit history favorably.
These three factors, of course, represent a large percentage of your FICO score. 60% of your score to be exact. And luckily, your student loans can help with these three factors. Case in point, my girlfriend (now fiancee), had student loans for three years following college. Despite my lower utilization rate and similar amount of available credit and age as her, she always had a higher score than me. Following payment of all her loans, her score dropped a bit to fall closely in line with mine. In this case, the loans did bolster her score, and she was often approved for credit cards with bigger limits than me!
So when someone tells you that you need to be miserable and forgo any type of fun in your life at the expense of paying down your student loans, you can go ahead and write that person off. To the contrary, you are a prime contender to sign up for a few rewards credit cards that will get you on a great vacation, responsibly.
If you are convinced this is the right path for you, a great combo to start out with are the Chase Sapphire Preferred, and the Chase Freedom Unlimited. With this duo, you can pair up about 75K points in Chase’s Ultimate Rewards program. Easy to earn, simple to redeem, and a great place to launch a career in the points world upon completing college. Not everything has to be tough for newly minted college grads entering the “real world”.