The Benefits of Making Consistent Student Loan PaymentsAugust 18, 2020
If you have student loans and consistently make your monthly payment, congratulations! You know how beneficial that can be for your financial health. However, if you are in the habit of skipping student loan payments because you think it won’t affect you, you need to keep reading.
Although missing a student loan payment isn’t quite as detrimental as missing a car or mortgage payment, missing student loan payments can have a strong negative impact on your financial future. Still need convincing? Here are four great reasons to continue making consistent student loan payments, and what to do if you’re struggling to make your payments.
Benefits of Consistent Student Loan Payments
Whether you have federal student loans or private student loans, there are many benefits to making consistent payments on time. When you make consistent student loan payments, you’re more likely to:
Have a Better Credit Score
Your credit score can affect many facets of your life. For example, if you want to buy a car, rent a home or buy a home, your credit score will be reviewed before you’re approved.
One of the most important factors in determining a person’s credit score is their payment history. The payment history shows if you miss a payment, and missed payments remain on your credit history for 7 years. So any missed student loan payments could take a significant toll on your credit score, while making consistent payments can help improve your score. A better credit score can:
Qualify for a Mortgage, Car Loan or Better Interest Rate
When you apply for a loan, sometimes lenders require a minimum credit score to approve the loan. Even after you are approved for a loan, a higher credit score means a better chance of receiving a lower interest rate. A lower interest rate equates to paying less interest over the life of the loan, saving you money!
Qualify for Refinancing
Whether you want to refinance your student loans or your mortgage, having a good credit score can help you qualify for refinancing and a better interest rate.
Qualify for Better Credit Card Limits and Rates
Having a strong credit score and good credit history shows lenders you are responsible with credit and making payments. Therefore, when you apply for a credit card, you are more likely to receive a higher credit limit and lower interest rate.
Qualify for Rental Housing
Even if you think you will not be taking out any other loans, if you are trying to rent a house or apartment, some locations require a credit report. A low credit score or negative credit history can prevent you from qualifying for certain housing.
Save on Interest
When you make consistent payments on your student loans, you will save on interest costs. Interest compounds daily, meaning more interest is added to your loan each day. Some interest accrues based on the principal of the loan (the amount you borrowed), while other loans interest compound based on the total outstanding balance. Therefore, consistently making payments, and making extra payments when you can, will save you from paying more interest.
Avoid Late Fees
When you make consistent payments by your due date, you will avoid having to pay any late fees. Saving yourself money that could be put towards your loans!
Pay Loans Off Faster
One of the best benefits of making consistent payments is that you can pay your student loans off faster. For example: if you are paid bi-weekly and decide to make half your monthly payment each time, you will ultimately make one extra payment per year.
Here is how it works: If you owe $50,000 at 7% interest and have a 20 year loan term, your payment would be approximately $387.65 per month. If this is paid consistently monthly you would end up paying over $43,000 in interest over the 20 years. However, if you divide your payment in half to $193.82 and pay that every two weeks you would pay the loan off 3 years sooner and save over $7,000 in interest.
What to Do If You Can’t Make Consistent Payments
If you are worried because you can’t make the payments by your due date, here are some options to try:
Switch to a Different Repayment Plan
If you have federal student loans, look into whether a different repayment plan would help make your payment more manageable. Although switching to a longer loan term or income-driven repayment plan will increase the amount of interest you owe in the long term, it’s best to have an affordable payment you can make so you do not default on your loan.
Try Refinancing Your Student Loans
Refinancing your student loans is an excellent way to make your loans more affordable and save on interest costs. Refinancing is taking out a new loan to pay off your old student loans. When you apply for a new loan you may qualify for a new lower interest rate, which reduces the amount you’ll pay over the life of the loan. A lower interest rate can also reduce your required monthly payment, making it more budget-friendly. After you refinance, you may also see that it is easier to make more consistent payments, such as bi-weekly, to pay your loan off faster. Use our Student Loan Refinance Calculator to see how much you can save with refinancing.*
When you are paying off any type of debt, it’s always best to make consistent payments on time. This will not only keep you in the habit of making payments but will save you money in the long run. Although paying off student loans may seem like a marathon at times, you will reach the end! Keep going because it will literally pay off!
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*Subject to credit approval. Terms & Conditions apply.