This is a question I asked myself when student loans first went into forbearance. At first I wasn’t sure if I should continue paying the minimum payments, stop paying them all together, or attack them with a vengeance. I wanted to get the most value out of the situation but I wasn’t sure what option would provide me with the best result. After a few weeks of considering the advantages and disadvantages I came up with the plan that was right for me.
Let’s talk about the advantages and disadvantages of all the options to get a better understanding of how to come up with a plan.
Option 1 was to continue paying the minimum payments. The advantage is I was already used to paying the money so it wouldn’t hurt my monthly budget. I also would not have to worry about accidently spending that leftover money on things that don’t matter long term. I would be slowly working my way to paying off the loan with the added benefit of not paying extra in interest. It would make a small dent for the no interest benefit but it would get me to my long term goals a little faster.
The downside to option 1 is it would feel the same as what I was already doing before the forbearance. So many people have been getting excited about the pause in student loans because now they have extra money to spend on whatever they want. I would not be able to participate in that excitement as I would not have immediate access to the extra money to use as I please.
Option 2 was to take the forbearance by not having to pay anything towards the student loans. The advantage would be to have access to more money within my budget. It would free it up to do more fun things and purchase whatever I want. Not only that, but I could choose to use the money towards other financial goals such as saving, investing, or paying off other kinds of debt.
The downside to option 2 is that there is no progress seen in paying down the student loan debt. Which means that the entire time of forbearance will simply be added time to the end of the loan. For example, lets say rather than paying it off in October 2022 it would be paid off in October 2023. That is assuming I stopped paying my student loans for a full year. On top of losing time this option would lose out on any no interest benefits. Meaning I would end up paying more in interest over the term of the loan. It would be almost as if the no interest forbearance benefit never existed.
Option 3 was to attack the student loan debt with a vengeance. Which means tossing all the money I have available in my budget to pay it down significantly during the forbearance. The advantage to this option would be saving a lot of money on interest that otherwise would have been building on the student loans. This speeds of the process significantly as well because of the forbearance. Less money due in interest means faster progress overall.
The downside to option 3 was my budget would need to be adjusted to be more intentional with paying down student loans. It would also mean a tight budget with very little wiggle room to do or buy the things I want. I would not get the immediate satisfaction of having more money in my budget that others are taking advantage of right now.
After looking at all of the advantages and disadvantages I was able to come up with the plan that was right for me. Which was surprisingly a combination of option 2 and 3. I knew for my long term success that it was more important to become debt free than to have temporary joy from immediate purchases.
I had other debt besides my student loans. I had credit cards and car loans. Both of which were a higher priority to payoff over the student loans. When the student loan forbearance started I wondered if I should re-prioritize my debt payoff plan to attack my student loans first. After all, I would save on the interest while paying minimum payments on the other debts.
After some more thought though I realized that while I may be saving a small portion on student loan interest, I would be losing money on the larger interest debts. When I realized this I decided it was a smarter plan to stop paying my student loans to reroute those payments toward the other debt. In doing this I was able to payoff two car loans and a few credit cards.
When the other debt was paid off that freed up way more money than even the student loan forbearance had freed up. It got me way closer to my debt payoff goals and significantly reduced the amount of interest I would have paid. Once everything else was paid off I moved onto option 3.
I began attacking the student loans. With my current plan and budget I should pay them off completely before the student loan forbearance ends in September 2021. The student loan forbearance plan can really help you if you develop a good plan and stick to it. It helped me get out debt faster in all areas, it reduced my interest significantly, and reduced my debt payoff time so I can celebrate debt freedom a lot sooner. I pray that you too can use this time of student loan forbearance to your advantage.
