Of all the questions that come into my inbox, the most frequent one is typically someone who wants help dealing with the following circumstances:
- They have large amounts of student loan debt and cannot afford the payments
- They are currently behind on their payments and worried about delinquency, default, garnishment and late fees
- They want to get help with their loans but their low credit score makes it difficult, and they can’t find someone to cosign for their loan consolidation.
Trying to pay off your student loans and dealing with the consequences of a bad credit score can be very difficult. Typical options such as consolidation, are made significantly more difficult. Additionally, perks such as 0% interest credit cards or personal loans are not an option. This advice is for the people who feel like they are at the end of the road and have looked at every option.
Fixing Your Student Loans
Step Number One: Make sure you are able to track down all of your student loans. Once you have located all of your student loans, you want to make sure you are in the best available repayment plan for you. Often, especially for recent graduates, a deferment of a forbearance can help you through an economic rough patch. Just remember that these temporary fixes may lower your monthly obligation, but your loan balance will continue to grow.
Even when you have made sure that you have the best possible repayment plan for all of your loans, keeping up with your student loan debt can still be very difficult, so it is very important that you stay on top of these issues.
Step Number Two: Never ignore problems that you are having. Time is not your friend when it comes to student loan issues. Each month that passes without you taking action makes your problems worse. Being a little late can easily turn into a delinquency, and a delinquency can easily turn into a default or a garnishment. If you can’t make a payment, call your lender and address the problem head on. You never know what options are available unless you call. The only certainty, is the if you ignore your loans, it will haunt you.
Step Number Three: Budget, budget, budget… before the month starts know exactly how much money you will be earning and how much you will be spending. In theory budgeting doesn’t actually save you any money, but in practice you will find that by watching every penny, you find ways to save here and there.
Step Number Four: Plan ahead. Student loans typically have no prepayment penalty, so it may seem tempting to pay whatever you can whenever you can, but you will want to be prepared for a difficult month in case you face any unexpected costs. An emergency fund is critical to keep on hand.
I’ll be the first one to admit that this solution sucks. For many of you it might just mean treading water and it may seem like you are not getting anywhere, but treading water is better than drowning. The longer you can scrap by just barely keeping your head above water, the more opportunities you give yourself to get a better job or lower your expenses. If you find a way to get by month to month, you credit score will improve and you can work your way out of this hole.
Whatever you do, please don’t fall into any student debt elimination scam. It seems new ones are popping up each week, and they are targeting people who more than anything just need hope. Don’t give any of your hard earned money to anyone until you have verified that they are deserving of it. If there is any doubt in your mind, feel free to drop me an email, and I’d be glad to check it out for you.
Finally, its important to remember, bad credit or not, paying off student loans is a journey not a sprint. There is no magic way of doing it and you can’t get it done overnight. However, if you work at it, your loans will be paid off before you know it.