Gather Little by Little

I enjoyed reading the M-network answers to the question posed by Leah last week. There is a lot of good information in the M-network responses and you will find an argument for almost every viewpoint in the comment thread. I have discovered that the comment threads here at Gather Little by Little are a great resource themselves. The articles seem to just be the place where the discussion and advice begins. Great job, GLBL readers!

In response to Leah:

First off, you are in a great position financially and I am going to assume that you got there with no help from your boyfriend.

Don’t let him mess you up.

He is probably a great lad with all kinds of potential, but I have observed in life that boyfriend advice is kind of like a political campaign speech. It sounds good, but cannot really be trusted and he will never remember saying it later on. I say this being a former boyfriend myself. When it comes to boyfriend advice, there is almost always a hidden agenda behind the suggestions.

So why would a boyfriend encourage his lady to delay college loan repayments and save up to have more cash on hand? Some possibilities:

• He has a secret gambling habit and knows he might need to borrow from Leah’s emergency fund in the next couple of months.
• He wants to further entangle Leah in debt so that he can swoop in and save her at a future date.
• He wants to appear to have a keen grasp of complicated investment strategies and important sounding words like “interest” and “deduction” and “difference”. Concepts like “debt freedom” just seem too simple and provincial.
• He is secretly intimidated by Leah’s financial prowess and hopes to appear smarter by offering complicated suggestions.
• He wants to someday star in a credit report commercial ” with a dog and a yard” or wear a pirate hat on television.

Of course if Leah’s boyfriend were standing behind me right now, I might be singing a very different tune. . . But the fact remains that the sooner she can be debt free, the better. Leah has good financial instincts and I think she could probably answer her own dilemma without any problems. It is possible that she must have asked the M-network so that she could turn down his suggestion without getting personal. Sometimes girlfriends have ulterior motives too.

Fiance advice is only slightly better than boyfriend advice . . . of course, we all know that husband advice is infallible.

Should loan repayment ever be delayed?

Usually not, but there are a few scenarios where slowing down or delaying debt repayment is a good idea – particularly when it comes to government college loans. Two factors often make college loans that last debt to repay: typically these loans are low interest and usually the interest is tax deductible. If you carry a lot of consumer debt, your other loans are almost always financed at an APR far greater than the average student loan rates. Slowing down your student loan repayment in order to concentrate on other high interest debt can be good way to get your debt snowball moving.

How can debt repayment be slowed?

Government subsidized loan providers have been given a number of tools in order to temporarily reduce payments for debtors. Here are a few:

Deferred Repayment

There are many ways to defer college loan repayment. Typically payments on these loans are automatically deferred for six months after graduation, but it is important to find out if interest will accrue on your balance during this time. If you can start payments before graduation, you should do so. It will save you money in the long run.

I graduated with a relatively low amount of school loans – approximately $5,000. I entered graduate school the semester after I earned my undergraduate degree, so my loan payments were deferred until I finished my Master’s degree. However, I started making payments immediately and was able to reduce my school loan balance to $3,000 before interest began to take effect. Saved me a lot of money in the long run.

Military service will also cause most federal student loans to be deferred.

Consolidation

If you have multiple student loans, your mailbox is probably full of college debt consolidation offers. Companies will ask you to roll all of your small loans into one big loan with the promise of a “low monthly payment”. Consolidation is not always a good way to handle debt. It would take me an entire post to explain exactly why, but consolidation almost always results in a greater amount of debt and a higher total cost.

Alternative Payment Plan

Many federal student loan “note holders” offer alternative payment plans for people who might be going through financial difficulty. There are many different plans, but typically they offer a low, often interest only payment for a limited period of time, after which the payment balloon. Alternative Payment plans are a good idea in some limited circumstances, but it is usually best to just continue paying off the loan every month.

Forbearance

Forbearance simple means that your note holder gives you permission to stop making payments for a period of time due to hardship. Under forbearance, interest continues to pile up! Forbearance should only be considered under extreme circumstances.

If you chose one of these methods to reduce your debt, be sure to understand that ultimately, you still have to repay this debt. The longer you delay repayment, the larger the debt becomes. The best way to get out of debt is to work hard and pay it off!