For many borrowers, this relief has presented an opportunity to consider using the extra money toward other financial goals. But where to start? Here are five things that you may wish to consider while you have additional income:
Continue Student Loan Payments
Although payment suspension during this time is automatic, you still have the option to make payments on your loans. By continuing to make payments in this suspension period, payments can go further toward reducing your loan amount’s principal balance after you have paid all outstanding interest. Contact your loan servicer directly to continue making payments on your loans.
Build Your Emergency Fund
There’s nothing like a pandemic to remind us how necessary an emergency fund is for our financial health. This type of fund includes money set aside when unexpected expenses arise, such as car or home repairs, medical expenses, or unemployment. The amount needed will depend on your financial circumstances; however, general financial guidance is to accumulate between three and six months of your living expenses. Check out NerdWallet’s Emergency Fund: What It Is and Why It Matters for more tips on starting and building your emergency fund.
Pay Off Other Debts
Tackling outstanding consumer debt not only reduces your debt burden but also positively impacts your credit score. When deciding on a debt elimination plan, select an approach that keeps you motivated and successful in your debt-free journey. Some tactics include the popular debt snowball and debt avalanche methods. The Consumer Finance Protection Bureau (CFPB) provides information about these approaches and more in their blog How to Reduce Your Debt.
Create a Savings Vehicle
Savings accounts, Certificate of Deposits (CDs), and Money Market Accounts (MMAs) are valuable financial vehicles that allow you to accrue interest on the money you save while also keeping that money liquid, or easily accessible, if and when needed. Each savings vehicle has its benefits and restrictions, so be sure to research them to determine what’s right for you.
Boost Your Investment into Retirement
The sooner you begin investing, the more your money grows over time due to compounding interest. Consider contributing more to your retirement account(s) to give that compounding interest a boost. For additional retirement saving tips, check out Sophia Bera’s How Young Lawyers Can Save for Retirement.
What if I have little to no income? What are my options when student loan payments and interest accrual are reactivated?
Fortunately, an array of options existed on federally held student loans prior to the CARES Act, and they continue to be available to those who need payment relief. Those options include Income-Driven Repayment Plans, Loan Deferments, and Forbearance.
Choosing the best repayment plan strategy can be challenging, especially in times of hardship. You need to seek out helpful resources, such as AccessLex Institute’s The Road to Zero: A Strategic Approach to Student Loan Repayment to understand the options. Most importantly, though, you should contact your loan servicer directly to understand these options, risks, and your eligibility.
