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Tips for how you can take advantage of 0% interest and no payments
If you have student loan debt, you’re probably breathing a sigh of relief. Borrowers with federal student debt won’t have to make monthly payments and can expect 0% interest through September 2021.
The freeze first began at the start of the pandemic as part of the Trump administration’s government’s coronavirus relief effort. President Joe Biden extended the policy for several more months as his administration weighs canceling a portion of this debt. This would be added relief for the nearly 45 million Americans holding $1.6 trillion of student loan debt.
If you are among the millions affected by the freeze, it offers a unique opportunity to step back and take a look at your financial health. Can this freeze provide an opportunity to help you get out of debt or save more? We have some options for you to consider.
Option 1:Pay down your student loan debt
For those who are jobless, the forbearance helps them free up money for necessities such as food, rent and utilities. But If you haven’t lost your job you may want to consider paying down your debt load.
With interest not accruing during this time, you can make greater gains against your total debt. Your goal is to pay down the principal of the loan before you need to pay interest again. If you have multiple loans, chances are they carry different interest rates. Consider making a lump–sum payment against loans with the highest interest rate. Ask your servicer to apply your payments to these loans first and double check to make sure they are complying with your request.
Option 2:Build an emergency savings account
The average student loan bill is about $400 per month. If you’re not making payments on loans, this extra cash can be deposited in an emergency savings account.
Why is such an account a good idea? The pandemic has shown us how unpredictable life can be. You can find empowerment and a degree of control by planning for the future. Financial advisors say there is no better time to build up a healthy savings account than now.
We’ll help you prepare for the future with an emergency savings account. (You can also read our blog on building an emergency fund for more.)
Here are some quick tips for opening an emergency savings account:
- Choose an FDIC-insured, high–yielding account.
- Make sure you can withdraw from it anytime. Beware of opening an account that does not allow you to touch the money for a specified period of time.
- Set a savings goal. If you carry a lot of debt, aim for a modest savings of $1,000 or $1,500. If you have more money to spare, shoot for three to six months’ worth of income.
- Lastly, be disciplined. Make a promise to yourself that you won’t tap into the account aside from a real emergency.
Option 3: Save for retirement
The freeze on student loan interest rates offers you an opportunity to put more money toward retirement. If you have a 401(k) or an IRA through your employer but are not participating, try to match the contribution of your employer or budget for an amount that works well for your expenses and income.
Or if you’d like to start a retirement account on your own, we can help you open a traditional IRA or a Roth IRA and understand the benefits and requirements of both.
Get help from Greater Alliance
While your student loan debt is on forbearance, now is the time to strategize how to make the most of the opportunity. If you’d like help determining the best option for you, call 201-599-5500 or visit our website to see how you can put yourself in control of your finances.