Got student loan debt? Do these things before payments resume in October
With massive student loan forgiveness looking less likely as President Joe Biden focuses on other priorities, the end of the government’s pause on student loan payments looms on the horizon.
As of Oct. 1, tens of millions of borrowers will be expected to resume loan repayments, though a survey from the advocacy group Student Debt Crisis shows 90% aren't ready. There's a lot of speculation that Biden might agree to extend the freeze, but the administration has made no announcement yet.
If you haven’t thought about your student loan since payments were suspended in March 2020, you still have a bit of time to prepare. Here are seven steps to help you make the most of the next few months and ensure you get your loans back on track.
Get yourself organized
When your payments will resume depends on the time of month you originally began paying down your loan. So if your payment normally went out halfway through the month, that's when you should expect to start paying it again.
Did you even have automatic withdrawals set up? If you've changed banks or accounts since the pandemic hit, you'll need to update your loan servicer to make sure payments aren't disrupted. The same goes for your mailing address if you've moved in the past 16 months.
Finally, using the next few months to set aside funds to cover your first payments will make the transition easier on your wallet. And, losing that spending money will help you determine whether you need to tweak your budget or cut back on any expenses to accomodate the loan payment into your cash flow.
Preparing in advance beats having a loan servicer knocking at your door.
Review options if you're not working
If you're still out of work, or don't think you'll be able to afford your payments come October, you'll have some options.
You can either put in a request for economic hardship or unemployment deferment, which means you'll be able to defer your payments without racking up expensive interest.
Or, if your income is low enough, you might qualify for an income-driven repayment plan. You can use the Studentaid.gov calculator to figure out how much a repayment plan would cost you monthly.
Now's the time to figure out if that's the option you'll want to pursue as there's sure to be a huge influx of applications for repayment plans in the fall.
Deal with your other debts
While some people were able to use the pandemic to pay down debts and increase their savings, others found themselves struggling to get by.
A survey from CreditCards.com early this year found more than half of adults with credit cards added to their debt last year. And 44% of those who accrued additional debt specifically blamed the pandemic.
If you leaned hard on your credit cards to get through the COVID-19 crisis, you’re likely now dealing with a pile of expensive interest. You might consider paying down your balances more efficiently by folding them into a lower-interest debt consolidation loan.
With that dealt with, you’ll find your student loans are less of a stretch.
Make some room in your budget
But if you need even more space to accommodate your student loan payment, consider turning your attention to your insurance bills.
If you haven’t shopped around for a better auto insurance rate lately, you could be overpaying by up to $1,100 a year.
Experts recommend comparing at least three offers before settling on one. While that sounds like a lot of work, finding the best deal these days is as simple as answering a few quick questions online.
And, if you own a home, you can use the same approach to save yourself hundreds of dollars a month on your home insurance.
Trim that extra spending
In addition to reducing monthly debt and insurance bills, finding an extra few hundred dollars a month may require cutting back on spending.
But even if you’re running your household on a strict budget, you’ll still need to spend on essentials.
Ensure you’ll always get the best price by downloading a free browser extension that will automatically scan for better deals or coupons every time you shop online.
Earn a little extra
The above measures should help you find enough room to fit student loan payments into your monthly budget come October.
But if you’ve gotten used to having a bit of extra cash on hand, you may want to consider options to increase your income. Do you have a marketable hobby or talent? Turn it into a profitable side hustle and give your bank account a boost while doing what you love.
If not, you could always consider making the most of the red-hot stock market. You don’t have to understand all the Wall Street jargon or have thousands of dollars to build a successful portfolio. Download an app that lets you invest with just your “spare change”, turning your pennies into major profits.
Refinance your loan
If you still have thousands of dollars to pay on your student loan, even after making the room to accommodate resumed payments, why wouldn’t you want to get that debt off your books sooner than later?
Not only can you reduce your monthly payments and slash how much interest you’ll end up paying by refinancing your student loan, you can also pay off your debt years sooner.
With your loan paid off, and all that extra room suddenly in your budget, you’ll be able to move on to other financial priorities like buying your first home, starting a family or simply taking a long-awaited vacation.
