Get out of the hole
Some options if you’re crushed by student loan and credit card debt
The return of federal student loan payments in October has the potential to derail your finances, especially if you’re already struggling with credit card payments.
Here are some strategies to consider as you’re getting started.
1 Revamp your budget
An updated budget clarifies how much money is available to pay down debts. Review your debit and credit card statements for opportunities to cut back or find cheaper alternatives.
Start by writing down where your money is going, says Kristen Holt, CEO at GreenPath, a nonprofit credit counseling agency.
Prioritize essentials like rent, utilities, transportation and others, she says. And, if possible, work toward building an emergency fund of at least $500 to prevent more debt.
Next, determine whether you’ll be laser focused on student loan or credit card debt. Keep up with all payments, but put more money toward the high interest debt to make more progress.
2 Seek lower credit card interest rates
A good credit score of 690 or higher can qualify you for low-interest offers. A balance transfer credit card, for instance, lets you move debt from a different account onto the card to get a lower interest rate. The ideal balance transfer card has no annual fee, a 0% introductory interest rate and a reasonable balance transfer fee of 3% or lower.
For multiple credit card balances, consider a personal loan that consolidates debts into a single low-interest fixed payment.
If circumstances beyond your control are impacting your ability to keep up with payments, ask the credit card issuer if it has a hardship plan. It may temporarily lower interest and waive fees for a specific period of time, depending on the issuer’s terms.
3 Consider an incomedriven repayment plan
With an income-driven repayment plan, your monthly payments on federal student loans are based on your income and family size. The debts are also forgiven after 20 or 25 years of payments. There are currently four income-driven repayment plans to consider based on your goals and loan type.
When it comes to student loans, you either want to pay them off quickly to save on interest or pay as little as possible to take advantage of any of the forgiveness plans that are available, says Renée Earwood, an accredited financial counselor and student loan coach.