Here's how to cut your student loandebt

4 minutes
Here's how to cut your student loandebt

During the COVID 19 pandemic and some struggle to make payments on their personal loan, student loan, auto loan and mortgage repayments, the CARES Act gave federal student loan borrowers a chance to pause their payments interest free.When the Biden administration took over, it continued COVID 19 financial relief through September 2021.

If you took advantage of the program, you'd probably enjoyed fewer payment to worry about, especially if the uncertain economy impacted you.According to the Federal Reserve, the average monthly payment of a student loan is between $200 and $299.This money stored in your pocket can help you build an emergency fund or get ahead on other debts.

However, if your work and income has been steady through the crisis, you may want to forgo the program and get the federal student loans paid even though they're not required.Getting ahead can have several benefits, such as allowing you to:

Chip away at the overall loan amount.

If you have private student loans and federal relief, it is also possible that can compare rates and determine the costs of your loans.

1.Chip away at your total loan amount of 75%.

The Biden administration continues to suspend interest accrual for federal student loans during the relief period, which means the whole of your payments will be devoted to the principalThis can be a powerful tool for reducing the total federal student loan debt at home and to get traction on reducing your debt.Watching the end of your loan balance shrink and repay can also give you the motivation to pay it off quicker.

While the COVID relief benefits only apply to private loans, borrowers with federal student loans can look at options like refinancing their loans to get them paid off faster.You can use an online tool like Credible to view a rate table that compares college loans rates from multiple lenders at once.This can help you decide if refinancing is actually worth the option.

While timely repayment of a student loan and a healthy credit mix can positively affect your credit score, your total debt load, including student loans, credit cards and auto loans, can work against you if it is too high.Similarly, if you have a high student loan balance, it could lead to a high debt-to-income ratio, which is the net monthly income of your monthly payments compared to your total monthly debt payments.Lenders base their interest rates for mortgages or auto loans on factors that include your DTI, which can influence how much it costs you to borrow in the future.Paying the student loans cheaper can help improve your DTI ratio.

By paused student loan payments while federal student loan payments are paid, you'll reduce your loan balance and you'll also reduce the total amount of interest you'll pay over the term of the loan.Once the government charges interest on your loan amount again, the interest you acquiesce to accrue in future will be less as your interest balance becomes lower.This is a great way to save money over the term of your loan.

In this time, many private lenders have reduced the interest rate of student loan refinance and are offering their best refinance rates.Use an online tool like Credible to compare rates from multiple lenders at once.You can quickly find the best offer for your situation.

By paying off your federal student loans early, you can free up the money to pay other goals or repayment plans that improve your financial health.You may decide to buy a house, build up your investment portfolio or pay off a credit card quicker.It also avoids the potential of default after a situation changes.

If you've considered refinancing federal student loans right now to tap into higher interest rates, you may want to hold off - doing so would remove the COVID - 19 benefits.But it may be possible to reduce your private student loans in order to lower interest rates.You can use an online loan refinance calculator to get a sense of what the new monthly payments might be.This information can be beneficial in making the decision on how to better manage student loan debt.

Taking advantage of federal student loan programs when your financial situation has been negatively impacted can be a good way to protect your economic future.But if your monthly budget hasn't been strained by the economic uncertainty, there's no reason to stop making monthly payments.By continuing to make your federal student loans payments, you'll shape your financial future so that it continues to benefit you once the pandemic has passed.

Have a finance question?Email Credible Money Expert and your question could be answered in our Money Expert column by Credible.

  • Comments
Loading comments...