The suspension of payments, known as forbearance, has provided much-needed relief for those torn between staying current on their student loans or paying other bills. But for those who can afford to, it’s also provided an opportunity to stash away savings or make student loan payments anyway — without the interest adding up.
That’s because the forbearance automatically applies to anyone with federally held student loans, and won’t increase your payments during the pause period.
“The student loan forbearance is an opportunity for people to make progress in those areas without derailing the rest of their budget,” said Bruce McClary, senior vice president of communications for the National Federation for Credit Counseling (NFCC). “It’s also a good time to apply additional money toward paying off high-interest credit cards or signature loans.”
Here’s how you can make the most of your finances while student loan payments are on pause.
Pay down your credit card debt
Tackling credit card debt should be top priority. Credit cards typically carry high-interest rates and can keep you from making the most of your money for things like building an emergency fund and saving for retirement.
The average credit card interest rate is 14.65%, according to data from the Federal Reserve.
Couple high-interest rates with making minimum payments and you could be paying off your credit card for years.
Take this time to pay way more than the minimum on your card balances. Doing this will help you tackle your debt faster and free up credit for other expenses you may need later down the line.
Build up your emergency savings
It’s never a bad idea to start an emergency fund. Why? As we’ve all seen in the last year, life can be unpredictable. So it’s always good to be prepared.
Emergency savings can come in handy during unexpected events, such as a car wreck or loss of a job. It can also serve as a financial cushion when making a transition during uncertain times.
With monthly student loan payments on pause, you can redirect the amount you would’ve paid toward your loans to a savings account to build up your emergency fund.
Mark Kantrowitz, a student loan expert, recommends doing this first before deciding whether to continue making student loan repayments during the forbearance period.
“Aside from covering unanticipated expenses for car repair or home maintenance, it provides you with money to cover living expenses during a period of unemployment,” he said.
Try to save at least three to six months’ worth of living expenses.
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