The federal government has suspended interest on student loans as the economy sputters. Here's what to do with that unexpected cash.
- President Donald Trump announced on Friday that interest on federal student loans would be suspended "until further notice."
- If you're stable financially and don't need that money right now, there are four smart ways you can use it to give your future self a financial boost.
- Start by adding it to your emergency savings account. If that's in good shape, pay off high-interest debt or add it to your retirement account.
- You could also keep making the same monthly payment on your student loan and get ahead.
- Talk to a financial planner today about how to keep your finances balanced in this turbulent time. Use SmartAsset's free tool to connect with a qualified professional »
With closures and cancellations happening across the US this week in response to the spreading coronavirus, many Americans are likely to face financial burdens in the very near future as their incomes dwindle.
In an effort to help ease that burden, President Donald Trump announced in a press conference on Friday that the interest on federal student-loan payments would be suspended "until further notice" while the US deals with the ongoing coronavirus crisis.
Trump also declared a national emergency during the press conference, freeing up federal dollars to help clamp down on COVID-19. The break on interest is one of a number of efforts the Trump administration is making to avoid a total economic crisis for Americans, and details on how this program will actually work have yet to be announced.
If your income is stable and the pause on interest will mean a bit of extra cash in your bank account, there are a few ways you can use it to give your future self a financial boost.
Build your emergency savings
We don't know how long this crisis will last nor what its effects will be down the road, so do yourself a favor and inject as much cash as possible into your emergency savings fund (and keep that money in a high-yield savings account so it grows without any effort on your part).
Financial planner Natalie Taylor tells Business Insider, "Use those extra dollars to increase your emergency fund first, unless you already have three to six months of income saved. Extra cash can help you weather a temporary drop in income, potential out-of-pocket healthcare expenses, and give you a bit more peace of mind and flexibility."
Pay off high-interest debt
While you're not paying interest on your student loans, why not pay off any high-interest debt that's weighing you down? That's credit cards and any personal loans you're working to get out from under. "Prioritize debt with the highest interest rate first," Taylor says.
Save for retirement
You could also consider dropping that extra cash into your IRA or 401(k) account - just increase your contribution from your paycheck or the amount you transfer automatically every month.
Even though it may not seem like it, now is a great time to inject cash into your retirement accounts. The dip in the market means shares are essentially "on sale," so you're buying low and likely to see a decent payoff in the future when the market rebounds.
Get ahead on your student loans
If you'd rather just be done with your student loan debt, you could keep paying the same amount towards your loans every month and get ahead. You'll shorten the length of time you're paying back your loans and save some money on interest.
Whatever you do with your extra cash, make sure it's a smart choice that helps you stay afloat now or prosper in the future.
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