Over the past year and a half, we’ve seen a slew of stimulus and relief packages designed to help Americans cope with the economic fallout from the pandemic. That relief came in the form of incentive audits, a moratorium on evictions, tax breaks, PPP loans, and student loan breaks. Each of these initiatives has different start and end dates, making it more important to track initiatives that can help you.
Most recently, the Ministry of Education announced an extension of the moratorium on interest and payments on student loans from September 30th.st 2021 to January 31st 2022. This announcement means that millions of borrowers have several more months when they will not need to make payments or charge interest on these loans. A recent poll showed that Two-thirds (67%) of borrowers surveyed this spring said they would find it difficult to afford payments if they resume next month.
The US Secretary of Education called it “final expansion»To warn borrowers to prepare for the end of the moratorium. Borrowers are strongly encouraged to start contacting their lenders to determine what their payments will be after the end of the moratorium. Time without interest and without payments is a financial opportunity for the borrower. Here are some thoughts on what to do to get the best position before the relief period ends.
Examine your debts
Is the interest rate on your student loan lower than on a car loan or credit card? If you are unsure, it is a good idea to put together a debt inventory that shows the amount you owe, the interest rate, and the minimum payment. Since many have not had to make student loan payments in over a year, now is the time to determine what that commitment will be. Second, understanding the big picture of your debts can help you pay off your debts strategically.
Check your budget
Since student loan payments have not been part of many budgets over the past year and a half, there is a good chance that these dollars will be used for other purposes. To avoid a tricky adjustment in February, start looking at your budget with student loan payments and start getting those dollars back now.
Create an emergency fund
One of the best ways to prevent a buildup of debt is to have emergency cash. Unless you have $ 1,000 set aside for contingencies, increasing your savings would be a great way to use a portion of your loan payments. Think of the emergency fund as a bodyguard in your financial journey. A fully funded emergency fund is 3-6 months of spending, but you may want to look into these other strategies for repaying the loan first before moving on to saving more than $ 1,000.
Focus on high interest debt
If your student loans are subject to a moratorium and tend to have a lower interest rate compared to your other debt, this is an opportunity to take the money you normally invest in student loan debt and aggressively pay off the high interest rate debt. … By paying off high interest rate debt now, you are setting yourself up to pay less interest overall and speed up your debt repayment plan. To see the difference when focusing on high interest debt, check out our DebtBlaster calculator.
What if my student loan is usually my highest interest rate debt?
In case your usual student loan interest is the highest interest debt, make payments on your student loan. If you just make the regular payments, the loan will be paid off earlier because your entire payment will go to the principal instead of the principal and interest, as your student loans do not charge interest at this time.
What about student loan cancellation?
One question we received through our coaching service is whether you should defer your student loan repayment in full pending the cancellation of your student loan. Although there have been several recommendations for changing student loans, overall prospect of cancellation of student loan at the time of this post seems to be in its early stages, so even if you’re hoping for it, you can still prepare for 2022 chargebacks. Better safe than sorry!