The student loan situation in the country is still not getting any better. According to an article published on the Huffingtonpost.com, the number of Americans who owe student loan payment each month is more than the entire population of Australia, Canada and 200 more countries. That is because the number of borrowers have reached 40 million – and you can expect it to grow even further.
The same article, out of the 40 million borrowers, 7 million are currently on default. This means they are unable to pay off their monthly obligations. This is the number of people who have ruined their credit histories, have penalties growing their college loan balance and are in danger of compromising their employment opportunities in the future. The article mentioned that your inability to make your student loan payment will make you unemployable. Most employers are already doing credit checks on applicants and it can be a reason for you to lose out of that job opportunity.
Despite the growing problem on student debt, a lot of Americans still believe that college education is worth it. No matter how bad the loan situation is, the potential to grow your financial wealth is still at its best when you earn your degree. But even if that is true, you have to realize that making your student loan payment is the key to keep it from destroying your future.
3 payment options on college loans that you should never do
Fortunately for you, there are many options when it comes to solving your personal student loan crisis. Of course, you need to know which of the options will suit your finances best. But while there are a lot of options, you should also familiarize yourself with the list of student loan payment choices that you should never opt for. That way, you will never make the mistake of considering any of them.
Here is a list of three payment options that you should never considering when paying off your college debt.
- Not paying at all. When you do not make any payments and you send no word to your lenders that you cannot pay, this marks the beginning of your financial suffering. According to StudentAid.ed.gov, defaulting on your loans mean you are not sending any payments. First is being delinquent as soon as the first day passes that you missed a student loan payment. If you are delinquent for the next 90 days, your credit score will most likely have suffered already. When you failed to pay your dues for 270 days already, that is already considered a default. If this happens, you will be asked to pay the full unpaid balance at once, lose eligibility for any federal student aid, face wage garnishment, lower credit score, and your debt will continue to grow because of penalties and fees. This type of debt cannot be discharged by bankruptcy so you will be in big trouble if you choose not to pay this debt.
- Using your credit card to pay for it, then opting for bankruptcy. It is possible for you to pay your student loans through your credit card but you will be losing out more if you do. The interest rate on these cards are much higher than your college debts. And if you plan to transfer your student debt into your credit card and then file for bankruptcy, you will be in big trouble. The bankruptcy court can see through these type of schemes and you may be disapproved from filing. You should not try to fool the system and just pay it off the legal way – without any shortcuts.
- Putting your home on the line to pay off the debt. So here’s the thing, if you are putting your home on the line to pay off a debt from your graduate school, you need to think thoroughly about this option first. In case you fail to pay off your dues, you will be losing your home in the process. This is one of the big ticket assets that you have and it is not advisable that you put it on the line just to pay off your college loan. It is not like you are saving on the interest. Most home loans and college debts have practically the same interest. You are just putting your home in danger of foreclosure for nothing. And if you are going to do it in behalf of your child – then that is even more reason not to use the equity of your home. There are many stories of parents co-signing loans to help their kids, only to end up compromising their retirement plans because their children did not own up to the debt. So do not put the responsibility of the student debt of your kid on your home.
There are better student loan payment options that you may want to consider instead of these three. Just do your research so you know the other debt solutions available to you.
Best way to pay off your student loan debt
It takes a lot of hard work to become debt free. The more you achieve something the hard way, the more you will value it. If you pull yourself out of a problem without opting for the shortcut, you get to learn your lesson well.
We are not saying that the more you suffer, the better it will be. We are just emphasizing that in most cases, the shortcuts and quick reliefs are not the best debt solution. So here are our tips to help you work on your student loan payment every month.
- Approach it with a positive attitude. Try not to be all doom and gloom when thinking about your student loans. If it was a necessary step to give yourself better opportunities to earn more, then trust in your decision to borrow money. If you approach your student loan payment with a negative attitude, it will be harder for you to make monthly contributions.
- Know your loans. First of all, know the total amount that you owe and the lenders that you owe it from. Find out how much you need to pay each month and the due dates. Use tools like a repayment calculator.
- Use a budget. When you know how much you need to pay each month, look into your budget plan to see the maximum amount that you can pay towards your student loans without compromising your other expenses. Adjust your other expenses if you end up not having enough to meet your minimum payments.
- Boost your emergency fund. If you do not have an emergency fund, split your extra money to meet your student loan payment and at the same time, grow your savings. This will help you soften any future financial blows that could compromise your monthly expenses.
- Research the student loan payment options that you qualify for. Are you qualified for the income-based repayment plan? Or can you shift to a career that will help pay off your student loans? There are people who serve in the army just to help get rid of their college debt. Teachers also have a different payment option. Make sure you know all of your choices. Some government employees can get $10,000 worth of assistance when paying through the Student Loan Repayment Program of the US Office of Personnel Management.
Read about success stories. If you need some motivation, it helps to read stories about real people who have gone through extreme measures to get out of student loan payments. For instance, an article from Forbes.com tells the story of 3 people who went through unconventional methods to pay back their debts. From living off people’s couches, living in a van and literally living outside America – these were all effective in getting them debt free.