Pros And Cons Of Paying Off Student Loans Early – Should I Pay Off My Student Loans? | 0% Interest Until October 2020
Pros And Cons Of Paying Off Student Loans Early – Most Popular?
Federal student loan payments are suspended until September 30, 2020 and interest rates are 0%. Should I pay them off ASAP or just pay the minimum?
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While I was watching Tiger King the other day I noticed all my student loans had 0% interest on them. I emailed my loan servicer to see if anything with our loans would be deferred or suspended. Low and behold it happened with the signing of the new CARES Act.
I did what anyone else would do, I posted a survey story on my Instagram asking if I should pay my student loans off ASAP or just pay the minimum.
Let’s take a second to talk about the key details related to student loans from the CARES Act:
1. Federal student loan payments are suspended until September 30, 2020: This means if you decide to not pay your student loan payments, there will be no penalties or late fees. This only applies to FEDERAL LOANS. Private loans are not exempt as a result of the CARES Act.
2. 0% interest: This is what I noticed when I was looking over my loans. No NEW interest will accrue during this time until the end of September. However again, this is only on FEDERAL student loans.
3. Student loan debt collection halted: Any wages, tax refunds, or Social Security benefits will not be garnished during this period to pay for student loans. This used to be 60 days but was extended until the end of September. I didn’t know what this meant but garnished wages typically means your employer withholds a portion of your paycheck to pay the lender through a court order. This doesn’t mean defaults are forgotten, just collections are waived for now.
4. Pausing payments won’t negatively impact student loan forgiveness: I have a few friends and family members who are loan forgiveness programs as long as they make the minimum amount of a certain amount of payments to where their loans are forgiven. If you are one of these individuals, suspending payments will not negatively impact those programs.
What should you do? These are my suggestions and by no means should you take this as financial advice:
1. Pay off high interest debt: This may include credit card debt or any loans you have that hold an interest rate higher than 15%. Minimize your spending on credit line. Since we are ordered to stay indoors, this should be fairly easy unless you are ordering delivery every day. Pay down high interest debt first because I didn’t see any suspended payments or 0% interest on these. Your money will go longer paying these down first.
2. Build up an emergency fund: Since we don’t know how long this will take, take this time to build up 3-6 months of your essential spending in an emergency fund. essential spending includes your mortgage or rent, food, insurance, etc. I suggest keeping it in the high yield savings account so it’ll accumulate some interest but you don’t need it immediately and get withdraw it in a few business days.
Here are the pros to paying down loans ASAP:
1. Payments go directly to the principal balance
2. By the time interest kicks back in, there will be less principal for interest to grow
3. If you are able to pay them off in this time, no more loans
Here are the pros to paying the minimum or suspending payments:
1. Payments are still going to the principal
2. If you’re not paying anything, no interest is accrued
3. By the time interest kicks back in, it’ll be like normal but you’ll hopefully have more cash saved up or invested
What’s right? It really depends on your situation. If you find it better for you psychologically, paying down your student loans solely on the principal will put you in a better spot by the time interest rates go back to normal. If you pay them all off, no more loans. However, if you’ve lost income due to being laid off or you’re already in financial hardship, you can take this time to gain some relief from the suspended payments. If you have credit card debt, take the money that you would’ve used to pay down your student loans to go towards that. If you’re good there, establish, build up or pad your emergency fund.
I’m most likely going to follow these steps. Take care of credit card debt, pad the emergency fund, but most importantly, do what it takes to keep my line of employment. It also wouldn’t hurt to try and find side hustles like building up this channel.
Thanks for watching my video! See Ver and his fiancee in the Millennial Mortgage Trilogy:
Millennial Mortgage: https://www.youtube.com/watch?v=hKLL5W4a4kY
Millionaire Reacts: https://www.youtube.com/watch?v=ElRQPMgxXE4
Confronting Ver and Jenelle: https://www.youtube.com/watch?v=4W5o1iA-CI0
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