5 Ways to Tackle Debt While Federal Student Loans Are Deferred

Federal student loans have been deferred since March 2020. That is two full years of your loans not accumulating interest. If you haven’t been tackling your debt head on, now is the time. As jobs are restored and payments continue to be deferred, you’ll be able to make the dent in your debt that could change your life. Here are 5 ways you can reduce your debt.

Continue Making Payments

Payments on federal student loans were initially paused as we were facing the pandemic head on and millions of Americans lost their jobs (or were seeing a reduction in hours). Now that employment is up, you should really look at your finances to determine if you can afford to start making your monthly payments again, even if they aren’t required.

By making payments, you are putting more of your money at work since your loan isn’t accruing interest each month. Your entire payment will be going towards the balance, making it easier than ever to pay off that loan.

If you can’t afford to make the entire payment, assess how much you can afford. It’s easier to start adjusting to what life looks like with that new expense before it’s actually required to allow yourself some room as you are testing your payment affordability options.

Pay More Than Your Minimum

Really ask yourself, can I afford more than the minimum payment or do I just not want to? If you are barely scraping by, without excessive spending in areas like restaurants, clothing or vacations, then maybe the minimum payment is all you can do right now. Be ok with that! As you have time, start to look at how you can increase your income. 

If you can afford to pay extra, how much extra are you able to pay each month? This will be determined by your existing income and expenses but a budget can help you answer that question. I like to use this Debt Reduction Calculator spreadsheet from Vertex 42 to see when you can be debt free, allowing you to play with different monthly payment scenarios. This might be the exact tool you need to get motivated to pay extra on your debt.

Focus on High Interest Debt

If you have debt with higher interest rates than your current federal student loans, you may want to think about tackling that debt first, utilizing the avalanche method. Use the calculator above to assess your options. Using money earmarked for your student loan payment to pay extra on another debt will allow you to reduce the principal on the high interest debt, allowing you to pay less interest over time.

This will only be your strategy during the deferment period but if history repeats itself, extensions of this grace period will continue to happen. 

Adjust Your Budget

Whether you are struggling to make a payment or trying to calculate how much you can afford to pay towards your debt, a budget can be a helpful tool to answer all your questions. The 90-Day Expense Tracker in this free Ditch Debt Bundle will help you to figure out where the heck your money has been going. From there, you can decide if you need to tighten the belt in areas of excessive spending or eliminate spending in areas of habit or convenience. 

Remember, following a plan to pay off debt can be as aggressive as you want and it doesn’t last forever. I followed an intentional semi-aggressive plan to become debt free and while 20 months seemed to last forever, it still included vacations, happy hours, weekend festivals and home repairs. Paying off debt can happen in tandem to enjoying life.

Increase Your Income

At the end of the day, sometimes we just have to increase our income. Take a look at your free time and decide if a side job is necessary to tackle debt. This doesn’t mean working every weekend at a job that pays barely above minimum wage. Get creative and truly work smarter, not harder. Utilize your hobbies, skills, certifications, previous experience and network to find work that will pay you what you’re worth. 

Once you have additional income coming in, don’t waste it. Make a plan to use that money to pay off debt, save for a large expense or increase your emergency fund. 

While working with clients to become debt free, the problem I often see isn’t that they don’t make enough money. It’s that they don’t have a plan for their money and they don’t give every dollar a job.