4 Ways to Repurpose your Student Loan Payment for Progress
The U.S. Department of Education office of Federal Student Aid has extended the temporary suspension of federal student loan repayments with a zero percent interest accrual through at least September 30, 2021.
Most post-graduate students will tell you student loan payments can be burdensome due to the amount of debt and interest rates. A student loan payment on top of a car payment, house payment, and other debt can be overwhelming.
While the interest on federal student loans is not accruing during this time, it may be beneficial to shift your payment to other areas with high-interest rates or high monthly payments. Doubling up on other debts can significantly reduce your monthly expenses and hopefully eliminate a few. First Florida Credit Union has four great ways to make sure your student loan payment makes an impact.
Pay More on High-Interest Credit Card Debts
While interest is not accruing on your student loan, using that payment to tackle a high-interest credit card debt is a smart move. With every additional payment, your balance reduces faster, and the amount of interest you pay becomes less and less. This means more of your monthly payment goes towards your actual debt.
As you begin to chip away at your credit card debt faster, you will also notice your minimum payment shrink. A reduction in your monthly expenses is always a win.
If you want to make the most impact, consider a balance transfer to a credit card with a lower interest rate. Then, double up on your payments for even more progress.
Build Your Emergency Fund
One of the reasons people get into debt is that they do not have enough money to pay for unexpected expenses. They borrow through high-interest credit cards to pay for the expense, then owe inflated monthly payments to pay back the creditor, only to encounter another unexpected expense. Thus, the cycle of borrowing and owing continues. This is a very common situation.
A simple starter savings of $1,000 can save you from throwing your money away on interest and give you more control over your finances. You will be able to cover small expenses with ease like replacing a tire, minor car repairs, unexpected medical co-pays, and small home repairs.
If saving your first $1,000 inspires you to go farther, start working towards saving three months' worth of expenses. A healthy savings account will help cover your needs for more extensive costs like loss of income, large car repairs, or even significant pet expenses.
Make Extra Car Payments
According to Credit Karma, the average used car payment is nearly $400 a month. If you currently have a car payment, this probably hits home.
With the next seven months suspension on federal student loan payments, now may be a perfect time for you to pay your vehicle off early. Just think, by the time your student loan payments are due, you may be able to take the extra money from your car payment and apply it to your student loan balance every month. Paying off one debt and applying the additional payment towards another debt is often referred to as a snowball method to tackling debt, and it is very effective.
Continue Paying Your Student Loan
If your student loan debt is currently your largest money woe, keep making payments during the suspension. In fact, pay more if you are able. Since there is no interest accrual temporarily, every dollar you pay now will go directly toward reducing the balance of your loan. If you continue to pay, you will see a reduced balance when payment obligations resume, and your monthly interest accrual will begin to shrink faster.Consider these four impactful ways to apply your student loan payment during this time. There is no greater investment than the investment in your financial freedom. Use your money wisely, and the rest will fall in place.