Three Payoff Strategies for Medical, Mortgage and Student Loan Debt
If you’re feeling weighed down by debt, these tips can help.
If you racked up debt in 2020, you’re not alone. The COVID-19 recession has taken a toll on many Americans and according to the New York Fed Household Debt and Credit Survey, total consumer debt stands at a record high of $14.35 trillion as of the third quarter of 2020.
If you’re struggling with any of the most common types of debt — medical, mortgage or student loans — consider the following three debt payoff strategies.
Debt payoff strategy #1: Medical debt
Because of the COVID-19 pandemic, it’s not surprising that medical debt has been so common.
The first step in managing medical debt is to carefully check your bill for errors. According to Modern Healthcare, it’s estimated that four out of five medical bills contain errors. Identifying and reporting these charges can be a relatively quick win in reducing your medical bills.
After reviewing your bills, consider the following strategies:
- Leverage government programs such as the Medicaid and Medicare Savings Programs.
- Ask your local hospital if they provide a financial assistance program or charity care for those who can’t afford to pay their bills.
- Consider tapping into your home equity, negotiating a debt settlement or working out a repayment plan with your hospital or doctor’s office. You may be able to negotiate an interest-free payment plan or a discount for paying your bill in one lump sum within 30 days.
Debt payoff strategy #2: Mortgage debt
Taking on mortgage debt allows you to build equity and net worth over time. However, there are advantages to paying off your mortgage loan early, which include freeing up additional cash for emergencies.
If this is your goal, consider the following strategies:
- Refinance your mortgage. By obtaining a better interest rate on your mortgage, you can save thousands of dollars over the life of your loan.
- If you pay private mortgage insurance, ask your lender to remove it when you obtain 20% or more equity in your home.
- Make an extra payment toward principal each quarter. On a $220,000, 30-year mortgage with a 4% interest rate, if you pay an extra $500 toward principal each quarter, you’ll pay off your loan almost 7 years early and save more than $40,000 in interest. Make sure you use the proper channels with your lender to apply these extra payments directly to the principal on the loan.
- If it’s particularly important to ease your mortgage burden early, consider selling your home and using the profits to purchase a smaller and less expensive home.
Debt payoff strategy #3: Student loan debt
With the skyrocketing costs of higher education, student debt has become far more common. The good news is that if you’re carrying student debt, you have a few options to reduce the financial burden.
- Apply for a public service forgiveness loan. You may qualify if you are employed with a government organization, a 501(c)(3) not-for-profit organization or as a full-time AmeriCorps or Peace Corps volunteer.
- Defer your loans. If you’re in a situation that doesn’t allow you to repay your loans — such as serving in the military or being unemployed — you may qualify for student loan deferment.
- Consider income-based repayment. Under this plan, your monthly payments could be adjusted based on your income and family size.
Although debt can feel overwhelming, it can be carefully managed with the right strategies. Improving your personal finances will help position you for success in the years to come.
Malcolm Hong is a public relations officer for Zions Bank in Idaho.