How To Access Student Loan Debt Relief With Bad Credit

Student debt levels in the United States have increased immensely over the past few years. Approximately 44 million Americans have college loans. Overall, this debt is worth $1.6 trillion. 

If the COVID-19 pandemic has made it difficult for you to keep up with your student loan payments, you’ll need to explore your refinancing options before your arrears go into default. Here are some options to consider along with some of their potential benefits. 

Why Low Credit Scores Makes Refinancing Difficult

Due to lower interest rates, you may want to refinance your student debt to save money on your monthly installments. You may also want to secure a longer loan term. Unfortunately, having a poor credit score can make it difficult to achieve these objectives. 

FICO scores below 700, and especially those below 600, are typically associated with higher interest rates and fees. These costs are often indicated by the APR (annual percentage rate) that lenders charge their customers. Therefore, you’ll notice that these figures increase for borrowers with low FICO scores.

The table below illustrates the different interest rates obtainable with good and bad credit respectively on a $50,000 student loan. 

Fortunately, there are products like bad credit student loans that cater to low FICO score customers. 

How To Improve Your Chances Of Successful Refinancing    

If your credit score is in a low category, you may not be able to secure a significantly lower APR on a new consolidation loan than you’re already paying. Moreover, if your credit has deteriorated recently, you may even end up with a more expensive lending arrangement. To avoid this outcome, it’s essential to improve your FICO numbers as much as possible before you apply for refinancing.

Here are some of the factors that influence your score. You’ll be able to improve the following by changing a few basic financial habits. 

• Credit utilization. If your card balances exceed 30% of their limit, your FICO score will start to drop. You can prevent this from happening by paying down your outstanding amounts as much as possible and by keeping them low
• Age of credit accounts. The longer you’ve had a credit product and kept it in good standing, the better your score will become over time. You’ll want to keep your cards open even if you don’t use them too often. However, make sure you’re not paying too much in annual fees
• Payment history. Late payments, charge-offs, and defaults can cause your FICO numbers to drop substantially. Making sure that your accounts are paid on time will help boost your score over time 

Still Not approved? Try These Alternatives

Refinancing your student arrears may be the most desirable solution for unaffordable monthly repayments. Although, there are other options to consider too. 

• Ask your creditor for a repayment plan. If you’re having trouble making your monthly payments, your loan provider is likely to offer you one or more repayment solutions. For instance, a plan that lowers your installment amount based on your income will give you some breathing room until your financial situation improves
• If your student debt is government-backed, you may be eligible for a payment exemption as a result of the COVID-19 emergency. The CARES Act made provision for payment cessation on student loans until the middle of 2020. Extensions may be granted depending on the type of loan and the overall economic situation. You’ll want to contact your lender and find out if you qualify for debt relief of this type

It’s important to note that most loan providers won’t offer you repayment plans of their own accord. Therefore, you’ll need to approach them and request one. Being totally honest about your financial situation and asking for some help or flexibility from your lender will help to make your repayments more manageable and avoid damage to your FICO score. 

Apply For A Consolidation Loan       

Refinancing through a student loan provider isn’t your only option. A regular consolidation loan can be used to pay down credit cards and other arrears. It’s a very viable solution for expensive student debt.  

• Consolidation works by replacing several smaller, high-APR debts with a single umbrella loan that’s more affordable in terms of interest and other charges. You can use a loan of this type to pay down multiple smaller student loans
• In a scenario where you have three 15-year student loans of $10,000, $15,000, and $5,000 at 9.5%, 10.2%, and 10.8% respectively, your monthly payments would come to just over $323 a month. By consolidating these debts with a single 20-year loan at an APR of 9.0%, this amount could drop to $270 or even $241 if you extend your loan period to 30 years

Conclusion

Student debt doesn’t have to become a financial headache. By consolidating your existing school arrears or requesting a repayment relief plan from your lender, you can lower your monthly installment costs and regain control of your debt load.