If you have student loans, you already know what a drain they can be on your finances and how long it can take to pay them off. Due to COVID-19, you’ve likely gotten a break from that burden, but those loans are still outstanding, and you will eventually have to pay them off. After all, you signed your loan papers before and during college to pay back the money you owe, just like any other loan.
But 2020 isn’t like any other year in modern history, and graduates might see a cancellation of the money they owe, although it isn’t a guarantee. It’s a nice thought to think of yourself as free from your student loans, but instead of hoping you won’t have to pay the rest off, you want to go under the assumption that you will have to pay. That means you have to look at your finances and prepare now, so you’re ready to resume payments when they come due.
Student Debts in 2020
Beginning in March 2020, thanks to the CARES Act, people could take forbearance on their student loans and be safe from collections. Although you could have continued to make your student loan payments, you had the option of stopping payments without penalty. Part of the forbearance also meant interest didn’t accrue on your federally-backed loan. In essence, the act froze your loan from the moment you requested relief until the end of December 2020.
Since the end of the year is upon us, coronavirus is still in full force, and unemployment continues to rise, it might seem impossible to shoulder the student loan debt coming due.
Prepping for the Payment
Instead of hoping for forgiveness on your student loans, assume you will have to make the payments beginning next month. Is there a way you can make the payment with your current budget? If the answer is no, it’s time to redo your financial plan so that you can handle the weight of an additional loan payment.
If the government passes student loan forgiveness, but you’re ready to pay for it, you can use that money to pay off other debts, save for emergencies, or invest in diversifying your portfolio. On the other hand, if the bill does come due, you’re ready for it.
Retooling Your Budget
When creating your new budget for the year, add in a line item for your student loans and enter the amount you expect to pay each month. Fill in all your other expenses and income numbers, and calculate the difference between them to see if you make enough to cover all your bills plus the student loan.
If your budget can’t handle the extra payment, you have to increase your income or reduce your other expenses before student loan forbearance ends. Call your creditors to see if they can reduce your monthly payments or get a side job to increase your income.
Another option to redirect money to your student loan payment is to consolidate your outstanding credit card debts into one debt consolidation loan. Sooner Partners will look at your eligible debts and roll the balances into a single loan with one monthly payment and a single interest rate. With the money you save by making only one loan payment, you can move that money to fulfill your student loan payment obligation.
Your Future Finances
The world has had a tough year, and the CARES Act did bring relief to people across the United States who owe student debt, but that relief probably won’t last forever. Setting up your finances and incorporating your monthly student loan payment that will come due at the beginning of 2021 ensures the hit won’t come as a financial shock.
And if the government does decide to forgive your student loans, you’ll already be ahead of the game and can redirect that money to other things that can keep you financially stable for the long haul.