Another extension on student loan repayments just rolled out, and that has a lot of borrowers asking more questions about potential debt forgiveness and best practices for continuing payments. A large percentage of borrowers also have other forms of debt, especially credit card debt. With the hold on interest payments for student loans pushed back until August 31, 2022, and interest rates rapidly increasing, it’s difficult to determine the best strategy for payments on all of your accounts.
Are the “Best Practices” Best For You?
One of the most popular and effective strategies for paying off debt is to tackle the debt with the highest interest rates first. Let’s look at an example. If you had two credit cards and student loan payments, you would assess which debt has the highest interest rate and pay as much as you can each month over the minimum payment. This would help you pay off the debt quicker – therefore, you’d pay less interest. The other two accounts would be maintained with minimum payments while you pay off the first account; you would then start the process over again with the remaining accounts.
This method may not be as efficient if the amount of debt you carry per account is drastically different – like the difference between your credit card debt and your student loan debt. We recommend consolidating your credit card debt with a personal loan from Lendah. With a debt consolidation loan, you will decrease the number of monthly payments that you have to make and potentially lower your interest rate. You will be able to pay off your credit cards faster and then focus your attention on your student loans.
Will Student Loan Debt Be Forgiven?
There have been rolling pauses on student loan payments over the past two years, prompting calls for general student loan debt forgiveness. While this would be ideal for a lot of people, the fact is that we don’t know, and you shouldn’t place all of your eggs in that basket. It’s not an easy task for our government to come to a consensus, and you need to be prepared for anything. This is another great reason to consider a loan from Lendah. If you pay off your credit card debt before the latest moratorium runs out, then you can approach your student loans without stressing about additional debt.
If you would like to learn more about how debt consolidation works, check out this blog post!
Perks of Making Interest-Free Payments
If you have been avoiding student loan payments during the pandemic, you aren’t alone. Out of the 43.4 million federal student loan borrowers, only around 500,000 are continuing to make payments, according to Bloomberg. While this isn’t necessarily a bad thing, it may become an issue when we resume making payments in August – or whenever the Biden Administration decides to stop the extensions. For those who have been able to make payments during this time, there are some benefits that others won’t see come August.
Paying down an interest-free loan is the best case scenario. As you make payments, it only affects the principal debt, not the ever-accruing interest that drives up the cost of the loan. As the balance decreases, so does the interest charged to the account. You will shorten the life of your loan and pay less money overall by taking advantage of this interest-free time for student loans.
The Best Strategy For Paying Off Student Loans
We all have individual priorities when paying off our student loan debt. However, with the current student loan crisis, we find that it’s important to focus on removing all of the obstacles that can keep you from paying off your student loans. Lendah has the tools you need to pay off your credit card debt so that whatever you decide to do with your student loans, you aren’t affected by overwhelming credit card debt.
Get started today by filling out a quick questionnaire. Prefer to talk in person? Call us at 833-453-6324 and we’ll get you connected immediately with one of our loan experts.