What to Do With Your Deferred Student Loan Payments in the Past Three Months
With the interest and payments freeze on student loans expiring on January 31, 2022, there is still time to use that extra money to improve your finances for the remaining three months, especially if all of your other running expenses have not increased since the start of the pandemic. Here are some of your best options.
Debt repayment at high interest rates
Given that the average student loan payment is about $ 400 per month and the average outstanding credit card balance is $ 3,824 per person , paying $ 1,200 will go a long way in reducing high-interest debt before the student loan payment freeze ends. Assuming you pay off your credit card debt by paying 5% of your balance each month, the difference in percentage you pay $ 3,824 versus the potentially reduced $ 2,624 would be about $ 500 . This is money spent on interest only and does not include payments that reduce your outstanding balance.
Support your emergency fund
While there is debate over whether to have contingency reserves to cover living expenses for three, six, nine, or even twelve months, this is a great opportunity to grow your own fund by another thousand or two. Many people need this — the average emergency fund is about $ 5,000 per person, which is unlikely to cover more than 2-3 months.
Increase your pension contributions
If you’re under 30 and have nothing to save for retirement, now is a good time to do so. Financial advisors usually recommend taking control of your high-interest debt first, but you also don’t want to ignore investing in your future. The advantage of increasing retirement savings at an earlier age is that the compounding effect is amplified: a dollar saved at age 20 is worth ten dollars saved at age 50.
Bottom line
If you have money to spare in your budget, payments spent on improving your financial health will serve you well in 2022. If not, this is a good time to revisit your monthly budget to make sure you can handle student loan payments again after the moratorium. expires.