Student loans seem more affordable than any other loans, provided you take out a government-backed student loan. However, you will need to prove your eligibility criteria to get approval for these loans. You can seek these loans from a private lender if you cannot.
If you have taken on too much student debt, it can be hard to keep up with payments. Most people do not take student loans seriously as they do not affect their credit score, but that is the case with government-backed student loans.
If you borrow money from a private lender, you must clear all the dues on time. If you fail to do so, your credit score will be affected, and the default will continue to stay on your credit file for up to six years.
Remember that the damaging effect is not just limited to this. The lender can send your account to debt collection agencies. This could be nagging and tortuous. If you need to borrow money down the line, your credit score will be checked, and because of your poor credit rating, you will be charged with a higher interest rate or turned down.
Student loans in Ireland seem very affordable, but they might not. You often do not realise your repaying capacity, and this is when you fall into an endless circle of debt.
Here is what you can do:
Talk to your lender
If you feel like you cannot handle your debt, you should immediately talk to your lender. Keeping your lender in the loop is a must before the due date falls. Student loans go into default when you stop making payments despite warnings.
Government-backed student loans can be forborne, but if you have borrowed money from a private lender, it is not an option. Its damaging effects will appear on your credit report for a long time. If you inform your lender that you are struggling to keep up with payments, the lender will revise your repayment plan.
They will reassess your financial condition, so you do not struggle to pay off the debt on time. If money is tight, they suggest making a minimum payment, or they may offer you a payment holiday.
Informing them before the due date about your struggle will prevent you from missing the payment and losing your credit points. Note that you will have to give the notice to your lender in advance, so they have sufficient time to look over your current financial condition and accordingly revise a repayment plan for you.
Whittle down expenses
It is likely that you are still finding it hard to keep up with payments, but a lender cannot change your repayment plan a second time. You will have to use other means to stay afloat. Not to mention, the first area that many of you fall on his daily expenses.
You hate to look at your monthly budget, but this is a must. You should try to cut back on your expenses. Get your bank statement for the previous three to six months to see how much money you spend every month.
The next thing is to classify your expenses between essential and inessential. It should not come as a surprise that you will have to bank on a lean budget, meaning you will have to meet just essential expenses and say no to discretionary expenses.
By saving money on these expenses, you will be able to utilise this money for your debt settlement. It will make it way easier for you to clear dues. It is not necessary that you prefer to cut back on the whole of your discretionary expenses. Of course, you can eat out once in a while, but this comes later. Debt settlement is the priority.
Consider refinancing or consolidation
If nothing works, you can consider refining your student loan. This will help you avail of lower interest rates. However, remember that the length of the loan will increase, which means you will end up with more money in total.
Refinancing will help you avail of lower interest rates only when you have a good credit rating, so if you are sceptical about your repaying capacity, you should immediately apply for refinancing before missing a payment.
Consolidation is also a good option to consider. When you have multiple student debts or a student loan combined with other debts, including credit card bills, you should consolidate them into one large personal loan.
The advantage of these loans is that you will pay off all dues at once, and then you will be left with one large personal loan to pay off over a period of time. The interest rates of these loans will be much lower.
However, it is crucial to note that consolidation loans will be approved when you have a good credit rating. Otherwise, they could be a bit expensive. Do not forget to analyse your repaying capacity before opting for these options. Otherwise, they will do more harm than good.
Most of the time, people do not realise that consolidation and refinancing will cost them more money. However, with proper research, you can easily opt for the one that suits your budget fine.
To avoid default on your student loans, you should talk to your lender if you are struggling with payments. Try to cut back on your expenses. The more you trim down, the better it is. You can also consider consolidating or refinancing the loan.
If you want to take out a student loan, you should prefer government-backed student loans. They are much more reliable. However, if you are to take out these loans from a private lender, make sure that you have analysed your repaying capacity.
Government student loans are paid back after you start earning over and above the threshold income, but this rule does not apply in the case of private lenders. You are supposed to start making payments as soon as you borrow money. Make your decision wisely.