As we work with people to help them pay off their debts and achieve financial freedom, we see a lot of people taking a “wait and see” approach. Depending on the kind of debt they’re dealing with, many people are waiting for some kind of loan forgiveness, stimulus, or other outside help to bring them debt relief.
We urge people not to wait when it comes to facing debt. The time to act is now, no matter what kind of debt you’ve got.
Student loan forgiveness: will it happen?
Student loan forgiveness is a much-talked-about subject in the media, and that has led people to expect some or all of their debts will eventually be cancelled, so they have stopped making payments – especially because the forbearance due to COVID-19 doesn’t require payments to be made at this time.
If you’ve just received your college acceptance letter, you may be thinking your student loan debt will be cancelled eventually. Or, maybe you’re a college graduate and have stopped making student loan payments.
Here’s our best piece of advice:
Waiting for student loan forgiveness is a risk; as we wrote in “Understanding What Student Loan Forgiveness Really Is”, student loan debt isn’t likely to be simply waived.
Even if some kind of student loan forgiveness is enacted, it will simply mean a reduction in debt, or a waiver of interest fees.
The current freeze on federal (not private) student debt repayment (scheduled to end in September 2021, but that could still be extended again), also freezes interest charges. That means now is the BEST time to be paying down student loans.
If student loan forgiveness means waiving interest, then that forgiveness is already in effect due to the CARES Act. But if one waits until the student loan pause ends to start making payments again, then s/he has squandered that forgiveness.
What we’re saying is, make your student loan payments during the pause and pay down as much of the principal as you can while no interest is accruing. This will save you more money in the long run and your principal will be lower when interest charges kick in again.
Even if the pause in student loan payments is extended again past September, that’s all the more reason to take advantage of the opportunity to pay down your balance interest free.
If you simply can’t afford to make payments, then you should reach out for help now; don’t wait until you and millions of other student loan debtors are hopelessly behind on your payments. Student loan assistance is available today; you simply have to reach out and ask for it.
Don’t wait to start a debt reduction program
As an industry, those of us working to spread financial literacy and help people reduce their debt are holding our breath — a wave is coming, when the stimulus is over, when no more foreclosure or eviction moratoria are in effect.
Because so many people are in the same boat due to the pandemic, the best move is to act first. This is a great time to seek nonprofit help before negotiators and creditors get overwhelmed with people seeking relief.
If you think you need debt help, reach out now, during the calm before the storm, and increase your chances of getting relief.
Consider loan forbearance
If you don’t want to go for a full debt management program, you can still talk to a credit card lender about some kind of forbearance. Your creditor likely has some kind of internal program to offer relief to their borrowers, especially in response to the COVID-19 pandemic.
You might see lowered payments, waived fees, and possibly an extended pause in monthly payments.
Be careful though, to know the full terms you’re agreeing to. Often a pause in payments doesn’t necessarily mean a pause in interest charges, and your credit card debt may continue to grow while you take a break from your monthly credit card bill.
If you think you’d like to ask your creditor for some forbearance, don’t wait. Talk to them now before the rest of the world comes around to start asking for relief later this year.
If you don’t feel confident reaching out to your creditors and asking for relief directly, talk to a certified debt counselor to get free, one-on-one coaching. You will learn what options you have and can decide the best path going forward.
Don’t wait to file bankruptcy
In the worst-case scenario, if you have no recourse but to file bankruptcy, you should seek legal advice sooner than later.
Another reason to make your move sooner is to get the clock started on credit recovery.
Bankruptcy is the most damaging thing you can do to your credit score, and rebuilding your credit takes time. The sooner you file, the sooner you can get on with the task of building credit over time.
Bankruptcy is not something you should enter into lightly. You’ll want to work with an attorney you can trust and have proper legal advice when you file. Bankruptcy counseling and education helps you make good, informed decisions before you take a drastic step like declaring bankruptcy.
Mortgage debt forbearance & rental assistance
Due to the COVID-19 pandemic, people have been able to skip rent or mortgage payments. This has let many people keep a roof over their heads, but it’s setting up a tidal wave when those back rent payments or mortgage payments come due.
In response to COVID-19 and its economic fallout, many cities and states are creating or expanding emergency rental assistance programs to help renters struggling to pay rent or utilities.
If you’re going to ask for some kind of mortgage relief, like a forbearance, loan modification, or some other kind of foreclosure prevention assistance, don’t wait to seek help.
Your best bet is to talk to a HUD-certified housing counselor who can examine your situation with you and help you come up with a plan tailored to your unique situation.
Take action today to ensure you’ll still have a place to live in the months to come.
It’s critical that anyone facing financial trouble related to their debts take the initiative. Don’t wait for a full economic recovery to change your fortunes and give you a chance at digging your way out of debt. Be on the leading edge of those people who are savvy enough to take advantage of the many debt recovery options available.