Between high interest rates and inflation, paying down debt or your regular monthly expenses can be hard. Credit card and student loan debt can add a new dynamic to your monthly budget. However, as garnishing wages for those who default on federal student loans is scheduled to resume this summer, it’s crucial to establish a repayment plan. Especially because this also ends a pause on collections that have been in place since the pandemic.
While you can offset negative actions by making regular payments, that’s often easier said than done. Not only will defaulting mean a potential 15% garnishment of wages, but it may also cost you valuable points on your credit score. Fortunately, certified credit counseling agencies can help you plan.
By signing up for counseling, you can create a budget with a certified professional, plan for the future, and gain greater financial literacy. Credit counseling agencies also typically offer a debt management plan (DMP), which can help you pay down your debt more efficiently.
What Is A Debt Management Plan?
Not only can a debt management plan (DMP) help you pay down your credit card debt in three to five years, but it also offers repayment benefits that make it easier to save more money.
Once enrolled in a DMP, a credit counselor can work with your lenders to consolidate your credit cards into one monthly payment. These negotiations typically include a lower, more affordable monthly bill and a reduction in your interest rate—plus, it shows credit consumer agencies that you’re working on paying back your lenders.
Although you can’t add student loans to a DMP, the lower monthly payment toward credit card bills allows you to earmark more money each month toward your student loans.
Bottom Line
If you find yourself defaulting on student loan payments and are issued a 30-day notice of wage garnishment, you may be able to negate the action by paying off the balance, renegotiating repayment terms, or requesting a hearing. However, a DMP can help you pay less over time while staying above water on debts like student loans.