The pause on federal student loan payments, originally scheduled to expire May 1, was extended through August 31 by the Biden administration. Borrowers now have until the end of the summer to start paying off student debt again and experts advise getting a head start on debt repayment plans. Here are the key areas borrowers need to focus on to beat the final student loan suspension deadline.
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Keep paying your loans during the break
Charlie Javice, head of student solutions, Chase and founder of Frank, recommends that borrowers who can afford it continue to repay their loans during the break.
“By continuing to repay student loans during the break, you’ll be able to take advantage of the 0% interest rate to pay off principal debt, saving more money in the long run on interest charges,” Javice said.
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Add to your emergency fund
Use this time to build up your savings or emergency fund as a buffer. Set up a direct debit for your savings each month so you can’t even spend that money.
“An emergency fund will help you make financially wise decisions when the worst happens. You’re less likely to go into debt when your CA dies if you have money in the bank,” said Bobbi Rebell, CFP and personal finance expert at Tally.
Repay any other type of debt
Borrowers are advised to use this time to pay off any other type of debt. Rebell recommends starting with the debt that has the highest interest rates. For most people, it’s probably credit card debt.
Settle any outstanding debt before the student loan repayment takes effect. If you are unable to pay all of the remaining debt, continue to pay it off. This will allow you to better put money back in your pocket and achieve your financial goals.
Perform a refund simulation
Michael Sullivan, personal financial consultant at Take Charge America, said borrowers should set aside the amount that will be owed now to ensure they can do so.
Ideally, Sullivan said borrowers will have set aside payment amounts each month or used the money to pay off other debts to avoid a budget crisis. If the borrowers have spent everything, it’s time for a (very) unpleasant fiscal rebalancing. This acts as a dry run of what to expect and be prepared for once they start making payments again.
Borrowers able to save money can transfer the amount to savings or a special account. Those who cannot set aside the entire amount must determine exactly how much they are missing so that they can adjust their income or expenses.
“Not only will this test determine if they are ready, but it will also create a fund to facilitate the return to payment mode,” Sullivan said.
Perform an income verification
If the repayment test isn’t working, Sullivan recommends borrowers start considering other strategies for tackling student debt. A student loan counselor may be able to suggest a strategy, such as refinancing or another debt management arrangement that best suits your financial situation.
One possible move that borrowers can make is to increase their income. Rebell recommends that borrowers use this time to complete an income verification. This audit allows you to take a step back and think about your income and how you can potentially increase it. Some examples include considering asking for a raise, looking for other higher paying career opportunities if you’ve been in your current position for a while, or have a side job.
“Think about your financial goals when doing this income audit and ask yourself if your current income is on the trajectory you hope for financially,” Rebell said. “If not, don’t be afraid to explore other options.”
Sign up for automatic payment
“If you were signed up for autopay before the payment pause, you must reaffirm that you want to re-enter autopay,” Javice said.
Borrowers who are not already registered for autopay can use this time to register themselves. This ensures that they don’t forget to submit payments on time once the break is over.
Why planning ahead is important
It might not seem like the most fun way to spend the summer preparing to resume student loan repayments, but planning is always the key to success. And budgeting is just financial planning.
“Those who anticipate spending and prepare for it are more likely to succeed and less likely to experience a financial crisis,” Sullivan said.
Making gradual adjustments, like simulating repayment and being able to pay off any other form of debt when there is a window of opportunity to do so, can also be less painful than the shock of a sudden fiscal adjustment.
While there’s no confirmation that the current hiatus will be extended — or that student loans will be canceled — Sullivan said no one has ever regretted saving too much and having extra cash on hand .
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This article originally appeared on GOBankingRates.com: How to Prepare Financially (and Mentally) to Resume Student Debt Payments, According to 3 Experts