Many people may find themselves grabbing their credit cards more often to pay for groceries, home repairs, and any other expense that comes up. But the country's rising student loan debt still dwarfs all the combined credit card swipes.
America's student loan debt stands at $1.78 trillion, ranking behind mortgage loans as the second biggest consumer debt category. This amount is spread out among 43.5 million Americans, with the average borrower shelling out $337 every month. Keeping up with monthly payments can be tough, especially when money is tight. But if you fail to make payments as required, you could end up with a bigger problem: a dip in your credit score.
Check out the following two tips to help ensure student loan debt doesn't interfere with your credit score goals.
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1. Don't wait until the last minute to pay your student loans
With average monthly student loan payments soaring north of $300, it's not surprising that 15% of borrowers are behind on their student loan payments. One in four borrowers with income under $25,000 is having a challenge making timely payments, according to the latest student loan research from The Motley Fool.
If you have a predictable stream of income every month, you can set up automatic payments to ensure you don't miss any due dates. Your payment history accounts for 35% of your FICO credit score. Missing payments or failing to pay on time could have a negative impact on your credit score.
Also, it's important to have a financial plan so you can know where your money is going every month. Then, make sure you're allocating a piece of your paycheck toward your emergency fund savings. That way, you don't have to touch your student loan payment funds to tackle any unexpected expenses that come your way.
2. Explore repayment options that work for you
If you find yourself scrambling to make payments every month, you need to explore other repayment options.
Consider talking to the company that services your loan so it can lay out out all your options. The sooner you get in touch, the faster you can protect your credit score.
If you find your current repayment plan isn't working for you, then it may be best to switch your plan. For example, an income-driven repayment plan like REPAYE, the Revised Pay As You Earn Repayment Plan, caps your monthly payments at 10% of your discretionary income.
Dealing with multiple student loans can be a payment headache. It's at this point when you may want to explore loan consolidation or refinancing. Before you sign the dotted line, make sure the payment terms work in your favor.
Lessons that can change your financial future
Student loan debt doesn't have to be a thorn in your side. If you play your cards right, it can teach you how to successfully manage other forms of debt that may come your way.
Paying your bills on time and exploring your options are lessons that can not only help your credit score but also eliminate financial stress down the road. Once you learn how to tackle student loan debt, you'll be one step closer to crushing other financial goals with ease.
