Personal Loan To Pay Off Student Debt – If you have a lot of student loan debt, you may be willing to do anything to pay it off. And while there are many ways to pay off your student loans quickly, from income-based repayment plans to refinancing, you may be wondering if taking out a personal loan to pay off your student loans makes sense. Here’s what you need to know about borrowing to pay off student loans and when it’s a good idea.
Personal loans are a popular loan for people who need help paying for a large expense, such as a wedding or an emergency. And they are also often used for debt consolidation. That’s because personal loans typically have a reasonable interest rate and can save borrowers money by consolidating high-interest debt into a lower, predictable payment.
Personal Loan To Pay Off Student Debt
However, when it comes to getting a personal loan to pay off student loans, you need to discuss it with a personal lender first. Some lenders have strict requirements for allowing you to use a personal loan to pay off student loans.
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If you’re drowning in debt, there are a few situations where you can borrow money to pay off your student loans.
If you have private student loans, your personal loan interest rate may be low enough to save you money over the life of the loan. But because personal loan interest rates depend on your credit score, borrowers who work to improve their credit scores may not get the best interest rates.
Most student loans are not discharged when you file for Chapter 7 bankruptcy. But personal loans and other unsecured debts like credit cards can be paid off. While bankruptcy should be a last resort for debt relief, paying off your student loans with a personal loan first can be a smart move if you’re thinking about filing.
While using a personal loan to pay off your student debt may make sense in some cases, in others it may be better to stay on course or consider one of the alternative options described below.
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Federal student loans offer protection that is not extended by the lender issuing the personal loans. For example, the government issued a student loan repayment period in which no borrower had to make mandatory payments. So, if you choose to use a personal loan to pay off your student loans, you’d be stuck making loan payments instead of using forbearance to save and pursue other financial goals.
Personal loans can be difficult to qualify for, especially if you have a below-average credit score. If you are taking steps to improve your score, it may make sense to continue making on-time payments with your current lender to raise your score and then reapply later.
Interest paid on qualifying student loans is tax deductible up to $2,500, depending on income. So if you’re used to taking the student interest deduction at tax time, you may get a smaller or no refund when you convert your student loan debt to a personal loan.
Student loans are given beneficial treatment by the government, so in many cases it does not make sense to use a personal loan to pay them off.
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A debt management plan is a service typically offered by nonprofit credit counselors. As part of the plan, advisers will work with your creditors to lower interest rates and payments. Debt management plans are usually used as an option by those who have debt in collection. As part of a debt management plan, you may also be able to improve your credit score.
If you’re struggling to pay your student loans, you can apply for a deferment, which is a temporary suspension of mandatory payments. But you may still have to pay interest during deferment.
Both deferment and forbearance work as a stopgap to help when you can’t afford your student loan payments. Those who request forbearance are usually experiencing financial difficulties that may prevent them from making payments. As with deferment, interest can still accrue during the forbearance period and increase your debt.
Debt settlement means you offer lenders a smaller amount than you actually owe. Settlement is usually used as an option for those who are close to or in the process of defaulting on their loans. But if you can’t convince the lender to mark the debt as discharged, it can remain on your credit report as delinquent for seven years.
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Student loan refinancing means you can get a lower interest rate, which can save you money. But refinancing federal loans may mean you can’t participate in certain government programs. Private student loan refinancing generally makes sense if you have excellent credit, which means you can lock in a lower interest rate.
Consolidating loans means you make one predictable monthly payment. And using debt consolidation on a new loan means you may be able to lock in a lower interest rate and increase your savings.
Federal student loan borrowers can apply for several types of repayment plans, including income-based repayment plans. If you agree, you may be able to pay less on your loans each month based on your income and family status.
While it is possible to pay off student loans with another loan, the better question is should you? Taking out a new loan to pay off student debt isn’t actually paying off the debt, but rather moving it to a new location. But if you’d save a lot of money on interest or shorten the repayment period, it’s worth considering.
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While you may be able to use a bank loan to pay off student loans, it’s not always the smartest financial move. Consider taking out a student loan if a lower interest rate will save you money or if you’re considering bankruptcy. Otherwise, it may be better to stay the course and consider alternative options such as debt management plans, government payment plans, or student loan consolidation. When in doubt, it always makes sense to consult a financial professional who can recommend the best course of action for your unique situation.
This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are solely those of the author.
If you’re sick and tired of paying off your student loans with no end in sight, you’ll love this guide that contains tons of ways to pay off your student loans faster and reduce your student loan balance.
Student Loan Forgiveness (and Other Ways The Government Can Help You Repay Your Loans)
We’ve compiled a list of the 107 best ideas for paying off student loans. Sure, common advice like “make extra payments” or “use autopay” can help, but there’s a lot more you can do to speed up the process.
There’s literally something for everyone on this list, and we’re confident that using just a few of these strategies can save you thousands in student loans and years of student debt payments.
Check out our strategies by category below and see how you can start paying off your student loans faster today.
You can sign up for automatic payment with your loan officer and get a 0.25% rate cut and effectively a lower interest rate.
Pay Off Student Loans Fast With 7 Strategies
Did you know that your student loan interest accrues every day? Yes. It’s not just you. This can make it difficult to move forward and even more difficult to lose your balance.
One repayment strategy that helps is to make bi-weekly payments. Simply cut your monthly payment in half and make two monthly payments to student loan servicers instead of one.
You can lower your interest rate by refinancing your student loan. Check out the different lenders and our cashback bonuses.
Keep in mind that you’ll be giving up important benefits like Income-Dependent Repayment (IDR) and student loan forgiveness. You also need good credit. If it’s a good fit, student loan refinancing can save you thousands of dollars.
Financial Loan Calculator
The debt avalanche method means you pay off your highest interest debt first. You make minimum payments on all other loans and add your loan with the highest interest rate (such as a Grad PLUS loan).
You can lower your interest by forgoing in-school deferment and start chipping away at your debt and principal balance before it piles up.
You can write off up to $2,500 of your student loan interest. The amount you can write off and eligibility depends on your income, as there are phase-outs or phase-outs.
You can use Form 1098-E from
Can You Use A Personal Loan To Pay Off Student Loan Debt?
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