Student debt has reached an all-time high, with $1.6 trillion in the United States spread among 44.2 million Americans. Borrowers are paying on average $351 per month in student debt payments, debilitating many youngsters from buying a car, a home or starting a family. There is one thing that we are all certain of, we are in a major crisis here. There are some other things, however, that we really do need to clear up though. With all of the information out there it can be overwhelming trying to decide what is best for you and what is actually true, so we are here to help you out. Here are 3 myths about student debt that we are putting an end to.
Student debt is good debt.
We are here to tell you that no debt is good debt. Having any sort of debt means that you owe money, and when you graduate, a good chunk of your hard-earned paycheck will be going towards that debt whether you like it or not. Rather than buying a car, saving for a house or planning for a family, millennials have been forced into living back at home as they devote their earnings to their student loan payments. According to the TheStreet, 56% of this population has had to put the pause button on major life events because of their student debt. So remind us, what is good about this? Exactly — nothing.
If I’m feeling overwhelmed I should go into forbearance.
Time and time again we hear recommendations to “take a break” from paying your loans by going into forbearance, which allows borrowers to put a pause on their payments for up to twelve months. You may even receive this advice from your lender, which is unfortunately just an easier process for them. The important piece of information that they leave out is that your interest continues to accrue while you are in forbearance. This means that your balance is growing every day and by the time your twelve months is up your monthly payments are likely to be higher because of your increased balance. Before taking such a drastic measure, consider an income-driven repayment plan which will take your salary into consideration and can dramatically reduce your payments to something that you can actually afford. If you do take this route, be sure to reapply every year! This isn’t automatically carried over and is a very common mistake that nobody reminds you about.
Student loan activity does not count towards my credit score.
Wrong, totally wrong. We aren’t sure where this one came from, but it has a lot of people misunderstood. Your student loan activity definitely affects for your credit score. If you make a late payment or miss one entirely it will be reported to the credit agencies and it will negatively reflect on your credit rating. This can be detrimental when you try to apply for a new credit card, try to rent an apartment or get an auto loan. The good news is that unlike a credit card balance, your student loans do not negatively affect your score by just existing. So, as long as you keep up with your payments your credit score should not change because of your loans.
I have been building a tool to help people monitor and get out of student debt a lot faster, please visit www.studentloaniq.app to learn more and monitor my progress. Thanks