Tips for taking 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 will not have to make monthly payments and can expect a 0% interest rate until September 2021.
The freeze began at the start of the pandemic as part of the Trump administration’s coronavirus relief effort. President Joe Biden has extended the policy for several months as his administration plans to write off some of that debt. It would be further relief for the nearly 45 million Americans with $ 1.6 trillion in student loan debt.
If you are one of the millions of people affected by the freeze, it offers a unique opportunity to take a step back and take a look at your financial health. Could this freeze be an opportunity to get out of debt or save more? We have a few options to consider.
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Option 1: Pay off your student loan debt
For those who are unemployed, abstention helps them free up money for necessities such as food, rent, and utilities. But if you haven’t lost your job, you might want to consider paying off your debt.
Since interest does not accrue during this period, you may earn larger gains over your total debt. Your goal is to pay off the principal on the loan before you have to pay interest again. If you have more than one loan, they are likely to carry different interest rates. Consider making a lump sum payment against the loans with the highest interest rate. Have your agent apply your payments to these loans first and verify that they are as per your request.
Option 2: Create an emergency savings account
The average bill for a student loan is around $ 400 per month. If you don’t pay back your loans, this extra money can be deposited into 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 advisers say there’s no better time to build a healthy savings account than now.
We help you prepare for the future with an emergency savings account. (You can also read our blog on building an emergency fund to learn more.)
Here are some quick tips for opening an emergency savings account:
Choose a high yield FDIC insured account.
Make sure you can opt out at any time. Beware of opening an account that does not allow you to touch money for a specified period of time.
Set a savings goal. If you have a lot of debt, aim for a modest saving of $ 1,000 or $ 1,500. If you have more money to spend, shoot for three to six months of income.
Finally, be disciplined. Make a promise to yourself not to dip into the account outside of a real emergency.
Option 3: Save for retirement
Freezing student loan interest rates gives you the opportunity to spend more money on your retirement. If you have a 401 (k) or IRA through your employer but aren’t participating, try to match your employer’s contribution or budget to an amount that suits your expenses and income.
Or if you want to set up 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 the Grand Alliance
With your student loan debt on hold, now is the time to strategize how to make the most of this opportunity. If you would like help determining the best option for you, call 201-599-5500 or visit our website to see how you can take control of your finances.