A student loan deferment provides an ideal opportunity to delay paying off your student loans so that you can redirect the money to pay off debt. If you're eligible for a student loan deferment, use the extra money to tackle more pressing debt concerns. Here are three ways to make the most of your student loan deferment period.
1. Pay off credit card debt
Many credit cards charge much higher interest rates than student loans, so it makes sense to focus your efforts on paying the credit cards first. Unlike student loans which can be deferred, no time off is allowed for making credit card payments. Direct the money you save on student loans to credit cards with the highest interest rates first, while making the minimum payments on your additional credit cards.
2. Contribute to emergency savings
If you don't yet have an emergency savings account, or it is not sufficient to cover at least three months' worth of expenses, redirect your student loan deferral amount to a savings account. Consider putting your savings into a money market account, which will offer you higher interest rates than a standard savings account, while allowing you instant access should you need the money.
3. Make a few student loan payments
Even a handful of student loan payments during your deferment period can make a significant reduction in the overall amount you owe on the loan.
- If your loan charges interest during the deferment period, payments will reduce your interest charges.
- If your loan does not charge interest during the deferment period, making payments will reduce your principal balance, which is also beneficial. Once the interest starts accruing, it will do so on a smaller balance, so you will pay less interest overall.
A student loan deferral period offers an ideal opportunity to target your debt reduction efforts, so you can dig out of debt more quickly.
About the Author:
Julie Bawden-Davis is a Southern-California-based writer specializing in personal finance and insurance. Since 1983, her work has appeared in a wide variety of publications, including Family Circle, Ladies' Home Journal, Parenting, Entrepreneur and The Los Angeles Times.