With 2022 Student Loan Benefits, Here’s What You Can Do With Extra Money

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Are your finances in a tight spot, bouncing back, or barely affected by the impact of COVID-19?

For most Americans, their current financial situation falls into one of these three categories a year and a half in the coronavirus pandemic. As part of the government’s relief efforts, many people have been helped to suspend payments on student loans. which was recently extended until January 31, 2022.

This hiatus has temporarily eased the financial burden on the approximately 42 million borrowers with federal student loans.

But time for this extended assistance is quickly running out, giving borrowers one last chance to recover their finances or improve their financial position before payments resume in early 2022.

Extending the pause with student loan repayment: what to do next

1. Still struggling? You may be better off focusing your spending on the essentials and avoiding further debt.

Paying every bill can be a challenge during tough times. Consider focusing your money on basic necessities like food and housing while you try to stay afloat.

Budgeting is a great way to understand where your money is going and discover savings opportunities.

When it comes to student loans, before the pandemic, you may not have counted income-driven repayment plan… Or you might not be eligible. So submitting your application well before January 31, 2022 might be a smart move.

“If you can’t process these payments after they come back, you don’t have to puzzle over what to do at the end of January,” said Greg McBride, CFA, Chief Financial Officer of Bankrate. analyst. “It’s time to face it.”

Postponement or abstinence are other options.

2. Is it pleasant to recover from a difficult time? It might make sense to start saving so that you are in a good position when payments resume.

Monthly student loan payments are typically $ 200-300, according to a late 2018 Federal Reserve poll, meaning that most borrowers who would otherwise pay off their loans could get an additional $ 1200-1800 in over the next six months.

Use this money to accumulate savings if you managed to avoid costly high-interest debt during the pandemic. This savings account can be a reserve fund. Or some of the money can help you pay off future student loans in 2022. Make sure you choose high yield savings account to maximize the percentage you earn.

“You can use this additional cash flow for other purposes: replenishment of the reserve fund, increase retirement savings, paying off other debt with high interest rates – for example, debt on credit cards,” says McBride. “All of this would be a positive financial step.”

McBride says saving six months of spending in an emergency fund is an adequate cushion.

“But this is the destination, not the starting point,” McBride says. “In fact, what amounts to six months of spending is itself a moving target for years to come.”

The pause in student loan payments gives you some time to recover your emergency savings if they were depleted during the fall in income earlier in the pandemic, McBride said.

3. Has income ever suffered? Consider increasing your emergency fund or even your investment (if your emergency fund is already in a good location)

Some have been fortunate enough to redirect suspended monthly student loan payments to savings during the pandemic. The next six months offer another chance to add these funds to the contingency fund, if you have one.

You can also consider investment some of that extra money. Just make sure you have sufficient balance in your emergency fund first.

Increasing your 401 (k) contribution this year – if you have one through your employer – or transferring money to the IRA might make sense in your situation.

“The door slams shut at the end of December when you donate 401 (k) this year,” McBride says. “But the window for IRA contributions remains open until Tax Day in mid-April.”

Or, you can also choose to get the balance of a federal student loan.

“Without charging interest, you can still pay off your student loans, and every dollar goes directly to paying off the loan balance,” McBride says. “There is no headwind from interest. So there is an opportunity to speed up the payment of the debt if you can afford to do it. “

Bottom line

Failure to pay off your student loan by the end of the year can help you stay afloat or further improve your financial situation. Reassess your budget and plan ahead to be ready to resume federal student loan payments in 2022.

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