With student loan debt going up day by day, millennials and Gen X generation are getting affected all alike. As per the debt clock, the total student loan debt in our country has already touched $1,6 million mark. Those big payments are taking a toll on the financial life of millennials. One good way to delay student loan payments is to opt for deferment. But what is student loan deferment? How does student loan deferment affect credit score? Does it pull down your credit score? Let’s find out.
Before we discuss how student loans affect credit, it’s essential to know what student loan deferment is. Well, in this debt relief option, you can postpone your payments until a later time. You can postpone student loan payments when you’re in school or have gone back to school for at least part-time or you’re in a financial crisis. For instance, if you have lost a job due to unemployment or debt problems, then it becomes tough to pay back your creditors. You can apply for loan deferment in this scenario.
There are both pros and cons of a student deferment.
|You don’t have to make any payments for a long time. In other words, you get extra time to pay off your loan. You can take care of your immediate bills.
|Depending on the type of loan you have and the situation you’re in, additional interest accrues on your loan in deferment. Your outstanding debt will increase with time and you have to pay more to creditors if the loans are not subsidized by the federal government.
|You can defer payments for up to 3 months. You can complete your education or take steps to overcome your financial crisis.
|Your total loan amount will be sky-high due to the accruing interest.
How does loan deferment affect credit score? Well, student loan deferment doesn’t hurt your credit score. It will appear on your credit report. That’s for sure. But this is not viewed as a positive or a negative thing. So it doesn’t hurt your credit score.
However, there is one scenario when student loan deferment can hurt your credit score. If the deferment is due to financial problems and there are a few late payments, then that can hurt your FICO score. This is exactly why you should opt for student loan deferment before you start missing payments.
Recession is expected to hit in 2020. If you have student loans, then try to pay them off as soon as possible. If you can’t afford the payments, then check out these repayment options that can help students to eliminate debts.
You can also opt for a debt consolidation loan to pay off your private student loans. But you have to be extremely careful while taking out a student loan. You need to calculate how much you have to pay for the interest on the new loan. Is it less than your present student loan or is it more? Even if the interest rate is lower than your present student loan, then check out the tenure of the new loan. If the tenure is too long, then you may have pay more ultimately. That won’t be a wise financial move for you.
Student loan deferment can be a lifesaver when you’re going back to school or taking care of your newborn baby before returning to school or joining the Peace Corps. However, if you’re in a financial crisis but can afford to make monthly payments, then don’t opt for deferment. Just pay the interest on the loan to avoid paying additional interest and increasing your total outstanding balance.