Are you thinking about deferring your student loans for a few months? A deferment (or a forbearance) may seem like a good idea, but it is almost always a bad idea. In fact, there is really only one circumstance in which a deferment is a good idea.
Reasons you may want a deferment:
- You want to buy a car
- You are saving for a down payment on a new place
- The holidays are coming up
- You don’t start your new job for a few months
- You expect a raise in a few months
- Summer vacation should be interrupted by student loans
- You are looking for a job/a better paying job
The problem(s) with a deferment/forbearance
Taking a break from paying your student loans is a bad idea from a financial and psychological point of view.
Financially it is a terrible idea because of all the interest involved. It isn’t just that you are not reducing your balance, the problem is that you balance is growing each month. If you defer on your student loans because of a financial hardship, the debt is only going to grow. Your issues, like your interest, compound each month you choose not to pay. Even if you are unemployed, if you can afford to pay your student loans, you really should be doing it.
From a mental standpoint, getting a deferment or forbearance on your loan can create bad habits. In the six months you are not paying your loan, you may grow accustomed to spending money your really don’t have. Breaking bad spending habits is especially hard to do. The other problem with the deferment is that you may think in the back of your mind that it will always be an option. However, for most loans, deferments and forbearances are limited. If you run out, and you really need another, you are out of luck. Therefore, you should never plan on using them and treat them as an option only in case of emergency.
When should you get a deferment?
The answer to this question is pretty easy. If you absolutely cannot afford to pay your loans. That means if your options are an eventual default or a deferment, pick a deferment. While a deferment is a bad idea for the reasons already discussed, delinquency and default are much worse. Not only will you run into late fees and still get hit with the huge interest payments, but it will also hurt your credit score.
Moral of the story: Don’t get a deferment if you don’t want to make a student loan payment, get a deferment if you can’t make a student loan payment.