With the student loan freeze on interest and payments expiring Jan. 31, 2022, there’s still time to use that extra cash to improve your finances over the remaining three months, especially if all your other recurring expenses haven’t increased since the pandemic began. Here’s a look at some of your best options.
Pay off high-interest debt
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Considering that the average student loan payment is about $400 per month and the average outstanding credit card balance is $3,824 per person, paying off $1,200 would go a long way in reducing high-interest debt before the end of the student loan payment freeze. Assuming that you pay off your credit card debt by paying 5% of your balance each month, the difference in interest you’d pay on $3,824 compared to the potentially reduced amount of $2,624 would be about $500. That’s money spent on interest alone, and doesn’t include payments that reduce your outstanding balance.
Shore up your emergency fund
While there’s some debate about whether you should have emergency reserve cash to cover three, six, nine, or even twelve months of your living expenses, this is a golden opportunity to increase your own fund with another thousand or two. For many people, it’s needed—the median emergency fund is about $5,000 per person, which isn’t likely to cover more than 2-3 months worth of expenses.
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Ramp up your retirement contributions
If you’re under the age of 30 and have nothing put aside for retirement, this is a good time to do so. Financial advisors commonly recommend getting your high-interest debts under control first, but you don’t want to ignore investing in your future, either. The advantages in growing your retirement savings earlier in life is that the effects of compound interest are magnified—a dollar saved in your 20s is worth ten dollars saved in your 50s.
Bottom line
If you have the spare cash in your budget, payments spent on improving your financial health will serve you well for 2022. Otherwise, this is a good time to reassess your monthly budget to make sure you can handle making student loan payments again when the moratorium expires.