Lesson Info
8. Repayment Hacks
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Lesson Info
Repayment Hacks
So getting into just a couple of different repayment hacks, could be that the debt snowball, debt avalanche isn't necessarily your style. You're not doing income driven repayment. Or you could be doing all of those and still wanting to double down with these other options. A big one is just paying more than the minimum due. It does not matter what kind of debt you have, every little bit you can pay above the minimum monthly payment is going to help attack your debt in a serious way because that money is going towards the principal balance of your loan and not just towards paying off the interest. I know a woman personally who paid just an extra $10 a month and it shaved a full year off of her repayment plan on student loans. That's why I'm saying it doesn't have to be big money, even if it's just a few bucks it's still going to do some damage for you. So, every bit that you can. Now the one kind of catch here that I do want to warn you about is you should call and prescriptively tell y...
our student loan servicer where you want that extra money going. Couple different reasons. One, if you have multiple loans with that particular lender there might be one loan that you want to be focusing on, maybe you're avalanching and you want to attack that highest interest rate debt first. Or reverse, you're snowballing, you wanna attack the smallest balance first. You tell them exactly where you want that money going instead of letting them choose. The other reason is sometimes they do something a little sneaky and apply it to future interest, is what they'll call it. So instead of actually putting it towards your principal balance, they're applying it to future interest that you would be paying and then you start to see that it looks like you owe $ on your monthly payment because you've paid off future interest. It's really weird I know, I'm seeing some crinkled eyebrows in the room, it's a very bizarre strategy which is why you want to prescriptively tell them where you want that money going. You also want to do that to make sure that you are getting the most bang for your buck when you're doing this. Another one is this idea of bi-weekly payments. So essentially what you do is you split your monthly payment into two and, let's say every other Friday or whatever day of the week you want to do it, you make a payment. The reason this actually ends up shaking out into 13 payments instead of 12 is think about if you ever made bi-weekly payments from an employer, if they ever paid you bi-weekly. There are those two months of the year that you made three paychecks, and it felt so good. You got those sweet, sweet three paycheck months. Well you're kind of leveraging the amount of weeks in the year in order to eek out, in almost a painless way, an extra payment off of your student loans. So you'll end up making 13 instead of 12 and it still just feels like you're only paying your one payment a month. Now a couple catches here. One is make sure that both parts of your bi-weekly payment get in before the due date of your loan. You don't want to accidentally miss the due date. They're not always necessarily easily on the last day of the month, so just make sure you check that out. The other thing is not all servicers allow you to actually make bi-weekly payments. So, it is important that you check and if you don't, an idea is to just stash a little bit of money aside every month and than maybe once a year you go in and make an extra payment for yourself. Kind of creating that own bi-weekly opportunity on your own time, if you lender doesn't allow you to make bi-weekly payments. Finally, this isn't so much a hack as just something to be aware of, but check your workplace benefits because some employers have started to do this offering of putting money towards student loans for their employees. It's a way that they're trying to keep millennials and the upcoming Gen Zs loyal to a particular company, similar workplace benefit to having a retirement plan. Some companies who have started that include Fidelity, PWC, Penguin Random House, Staples, First Republic, and Aetna. If you don't have this available at work, which is still quite common, not a bunch of companies do it yet, try advocating to see if you can get added as a workplace benefit. I'm sure you can get a bunch of your coworkers to also rally around this idea. So, see if you can actually make some institutional change at your place of work and have them help you out with paying off your student loans. Now, like I said, we're gonna end with little bit of doom and gloom because it's incredibly important for you to understand the painful consequences of ignoring your student loans. First, it just straight up destroys your credit. I mentioned in that credit scoring segment yesterday that it can kill your credit up to about 100 points overnight if you miss a payment on something. So please make sure that you are always making at least your minimum monthly payment. Again, I wanna come back to this idea that it's never okay when you are paying off debt to a lender to ask for forgiveness instead of permission. If you know something has come up and you have fallen on hard times, proactively reach out to your lender before you miss a payment, see if they can work with you at all, if there's anything that they can do. They tend to be a bit more forgiving if you come to them first than if you missed a payment and you're calling in desperation after the fact. The next thing is if you miss a payment it can eliminate opportunities for you in the future. Like I said, especially with things like refinancing, it's hard to be eligible if you ever missed a payment in the past. You don't want to rob your future self of the opportunity. Again, if you're on something like a forgiveness program, you take 120 payments, it's not just default at the end of ten years, you have to make those 120 payments so if you miss a month, you're now adding more time before you're going to be eligible for forgiveness. You also don't want to give them an opportunity to reject your application so make sure you stay on time making those payments. The federal government also wants its money back and it will come for you. If you stop making payments, it can do things like garnish your wages, garnish your tax refund. They can actually even reach out to your employer, and then your employer knows that you're not paying your student loans and they can garnish up to, I believe it is, 15% of your disposable income in order to go towards repaying your federal student loans. I will say that private lenders don't have quite the same opportunity, they have to go take you directly to court and sue you in order to be able to garnish your wages. But again, you don't wanna have to go through that. Just know that Uncle Sam will come for his money. You can not just stop paying and assume that you're gonna fly under the radar and no one is paying attention to you. The government is coming to collect. Finally, bankruptcy is not necessarily going to help you. If you get into a financial situation where you realize bankruptcy might be the only way out, not all loans are discharged in bankruptcy, especially federal student loans. Just keep that in mind that that's not necessarily an out for you if you reach a point in your life that bankruptcy does seem to be the only option.
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Jay Valencia
Erin covers a lot of ground and she delivers it all with an approachable vocabulary. This is a series of classes well worth watching.
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