Paying back student loan debt and credit card debt can seem like it takes forever. As wage garnishment is set to resume for anyone who defaults on their student loans, having a solid budget can help you plan your finances more efficiently. However, repayment is sometimes easier said than done. With a pause on collections since the pandemic lifted, getting a handle on your debt can help ensure you aren’t penalized.
Getting in touch with a credit counselor is a good first move. They will help you create a budget for your situation, provide financial education, and help you plan for the future. Credit counseling agencies are nonprofit organizations that provide free credit counseling. A debt management plan (DMP) may be a good option if you're struggling with repayment.
While you can’t pay off student loans through a DMP, you’ll pay less on your credit card debt overall. This puts leftover dollars in your budget to pay toward your student loans.
Debt Management Plan Explained
A debt management plan (DMP) is a program offered by credit counseling agencies that allows you to pay off your credit card debt in three to five years. Credit counselors will work with your lenders on your behalf to consolidate your debt into one monthly payment at a reduced interest rate.
Bottom Line
It’s always good to know your options if you default on a loan, which can mean a 15% wage garnishment. Paying off the entire balance will, of course, negate action. But that’s an unlikely scenario in most people’s cases. Two other options include renegotiating your repayment terms or requesting a hearing. But if you’re struggling, a debt management plan can help you with repayment so that you can feel more financially secure.