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Debt Management Tips – For an Income Based Repayment Plan With Less Queries

by gbaf mag

An income-based repayment or income-drive repayment is basically a student loan repayment plan in the US, which regulates the monthly amount that one has to repay every month based on one’s disposable income and family size. Basically, what this means is that you have to pay more when you make less. That may sound like a good idea initially. After all, those people who have more money don’t necessarily have to pay less in order to live decently. But if you think that you can balance your monthly outlays with your income, then there are several options for you.

One of the options that you have is the income-based repayment plan. It works like this: you make a lower monthly payment until which time you have fully repaid your loan. At that time, you will have the option of opting for an increased loan amount. This means that you will be given a higher loan term to repay your student loans.

The advantage of such an approach is that you are able to maintain a decent lifestyle even as you pay for your education. In addition, you can choose to increase your loan amount as per your convenience. However, the disadvantage of this is that it is not always the best option. While you pay earn, the federal student loans you have taken may go into default.

For an income-based repayment plan, consider the alternative of the discretionary income. This is the money that you would have left over after repaying all other loan payments. When you use the discretionary income to repay your student loan payments, you are actually earning interest on this money and, hence, earning additional income. If you take up an interest only loan, you will only earn interest till the time your loan matures. If you use the discretionary income to repay student loan payments in this manner, you can save some money in the long run.

For an income-based repayment plan, consider also the private loans available to you. There are some private loans that offer you the choice to repay your loan using interest. You can even opt for an income based repayment plan using such a loan. However, if you don’t have the option of opting for another loan, you should at least try to increase your borrowings.

However, if you do not earn enough, you should still repay your student loan installments using interest. However, this should be only a short term solution. Ideally, if you don’t earn enough to repay your student loan payments using interest, you should try to increase your borrowings. You can go in for a federal repayment plan or a private loan scheme that offers you the option of increasing your borrowings on a monthly basis. In this way, you can manage your discretionary income and repay your student loan installments.

Consider also your other sources of income before you opt for an income-based repayment plan. If your parents get monthly paychecks, you can repay your student loan installments through them. Similarly, if your husband gets monthly paychecks, you can go in for a joint repayment plan. Consider the money that will be left after you pay your installments on time. This is the best way of managing your income to ensure that you repay your student loan installments on time.

The fact is that there are a lot of advantages of managing your income based repayment plan with your discretionary income. However, you should still be careful about managing your debt because there are always chances of going to default. If your credit scores fall because of your failure to manage your debts properly, you may land yourself into a huge debt trap. Hence, make sure that you don’t use up all your income in paying your student loans.

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