If you stop making payments on your student loans, they will go into default creating an even bigger problem. Student loan default means that you have not made a required payment in a certain length of time. Once your loans have defaulted, the loan servicing company can sue you, garnish your wages, and take your tax return.
It is important that you prevent a default whenever one may be coming. Below, we will go over some things you can do before you get close to defaulting.
1. Start a Budget
One of the first things you should do is start working on a budget. Find out how much you are supposed to pay per month and then find out how much money you will have left over after paying for necessities and your student loan.
If you find that you are not left with much, see where you can cut back to help save money or adjust your budget in other areas to allow you more money to put toward your student loan.
2. Get Another Job
While it sounds harsh, it is true. If you are unable to afford your monthly payment, consider getting a part-time job or doing something on the side that will provide you with additional income.
You will not have to work this second job forever and it will help alleviate some of the stress you have been feeling because of your student loan payment.
3. Get on a New Repayment Plan
If you have never called about your loan, you are probably on the standard repayment plan, which is a 10-year payback option. The payments on this plan are usually higher than other plans; however, this plan can be changed.
If you contact your loan provider, you will be able to talk about different payback options. For instance, you can apply for an income-driven repayment plan, which will base your monthly student loan payments on the amount of money you make per year.
For some individuals, the amount is often $0 per month and remains that way until their income increases. If you are having a financial hardship, you may qualify for this program.
4. Consolidate Your Student Loans
If you are in the position to make monthly payments, you may want to consider student loan consolidation. The way this works is that all of your federal loans will be combined together for one monthly student loan payment.
If you have private loans, those can be grouped together, but not with federal student loans via federal consolidation. If you want to combine those two, then you need to try to private student loan consolidation. Private consolidation refers to combining student loans together by paying them off with a new loan from a private lender. If you are qualified, then this new loan could come with a lower interest rate which could save money. However, if you’re close to defaulting, then the chances of qualifying for a refinance loan may be low. A federal consolidation loan is more readily available if you’re close to default.
Once all of your loans have been consolidated, you will then only make one single payment per month as opposed to multiple payments. Also, your interest rate and monthly payment amount are typically lower than what they were before.
5. Start Paying Off Smaller Debt
If you find that you are having trouble paying off your student loan debt, start paying off the smallest debt you have first. As you eliminate additional debt, you will find that it becomes much easier to continue making payments. Eventually, as you pay off debt, you will be able to take the money you were putting towards one bill and apply it to the next.
6. See If You Qualify for a Forgiveness Program
There are some programs that allow you to have your student loan debt forgiven after a certain amount of time. Typically, you must work in a specified career for a certain amount of time, but it never hurts to see if you qualify.
If you find that you are not able to pay down your student loan debt, it is important that you attempt to work something out with your loan servicer. Going into default is never good and can cause you to receive a negative mark on your credit report along with wage garnishment.
Author: Jeff Gitlen
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