Kia McCallister-Young, director at the nonprofit America Saves, joined Cheddar News to talk about how millennials are seeing better credit score numbers due to student loan debt being canceled and what to do if loans come back. "The most important thing right now is again leveraging on the fact that your credit score has improved," she said. "And there's some very basic things that you can do to keep your credit in line."  

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Millenials Credit Scores Benefiting From Student Loan Freezes

joining us now to discuss as kevin Mccallister young director of America Safe. Thank you so much for being here. Talk to us about what maybe credits and saving trends that you have actually noticed over the last maybe six months? Yeah. So like you said, credit scores have increased. It's been kind of a compounded benefit of pausing student loans. And so we're at this place where we have the opportunity to leverage and build on the fact that a lot of us have increased credit scores now with the the possibility that those student loan payments are actually coming back if you're not in a place where you can actually pay those and you're having some hard, the best thing that you can do right now is to contact your lenders and see what options are available to you. They often offer forbearance deferment and other hardship options. Um and by having those in place um there will be no negative. Um no, no negativity reported to the credit bureaus. So don't just ignore it. If the student loan payments happen to come back or when And they come back, make sure that you're proactive and you're reaching out to your lenders to have a plan in place so that you can leverage and build and maintain or even increase your credit score, continue to increase it. Yeah, the worst thing you can do is ignore it. So that's a good advice but you know, the federal student loan moratorium is set to expire at the end of the month. The time is ticking August 31 is to date. So do you see that maybe being extended and what does that mean for people with loans? Yeah, so we never know right. I wish that I could, I had a crystal ball where I could say yes, it's going to be extended. Um but I do think that the possibility is there, but we have to prepare either way and so if you do again, if those payments do come back, the best thing that you can do is be proactive if they do happen to be paused again, think about, take a really get a really clear view on what you can do instead to um kind of uh navigate those funds to put you in a better position when they finally do come back. So if you have other loans and student loans, you either are able to get that forbearance or deferment or they are posit again, the best thing you can do is kind of divert those funds so that you can possibly reduce any other debt that you have to free up some of that cash flow. So when those student loan payments do come back, you have less of a hardship and less debt um and other expenses that you have to compete with when those student loan payments come back, you make a good point there because there may be a lot of people that have these high credit scores and they have to start paying back this loan money, but they have this other debt too and they're like okay how can I pay all of this back at the same time you say call these creditors and these you know banks, what do you say to them when you call I'm broke. I mean what I mean, yes, just tell them that you're having hardships. You know we've all been affected by the pandemic and definitely inflation now. And so these lenders, they understand and they actually want to help you. The worst thing again that you can do is kind of avoid your thing. The thing that's harming you talk to them let them know what your financial situation is and they can give you some options. The most important thing right now is kind of again leveraging on the fact that your credit score has improved. And there's some very basic things that you can Do to keep your credit um kind of in line. Um and and uh either maintain or increase it. So continuing to pay all of your debts on time. Um keeping your credit age, so making sure that you're not closing any accounts. Um and then keeping your balance is less than 30% of your available credit limit. So you know kind of having that strategy working on the existing debt that you have while you're also getting help from those lenders, getting different options so that you can really get yourself in a place that when everything comes back and hopefully one day returns relatively normal as far as inflation goes, that you're in a really good position. Um financially well, as you know, the Fed is expected to raise interest rates again to fight inflation. So how are those high interest rates going to really impact borrowing opportunities for students and impact the loans that they already have? Yeah, it kind of slows everything down um as far as available credit to you. So it's harder to get loans. And those higher interest rates make, makes it harder for you to qualify, especially if you're, you have a low to moderate income. So the best thing to do right now, thinking about those, those rates increasing is one, look at the rates that you have right now. Um and and look at what of your debts have the highest interest rate in. Maybe your strategy is paying those down and off first. Um So you know, there's lots of different strategies for paying off debt and that is one where you can really start focusing on how much you're paying an interest so that you can free up some cash flow. Do you recommend students get other credit cards or you know, even through anybody for that matter after dealing with this debt and they're saying, well I need to pay that with cash. So I need other credit cards and then they're just adding more credit cards and more debt onto the situation at hand. Yeah, it's a really personal decision, right? This is the time where we're a big proponent of America saves of being an informed and empowered saver so that you can make the best decision for yourself. So what that looks like it's kind of knowing your own habits. If you know that getting another credit card makes you feel like you're jesus have extra money and you're going to kind of max that card out, then that decision, that personal decision probab probably will end up with you making the choice to not get a credit card, but if you are in a place where you are very responsible with credit cards um and that you have a strategy for it like getting rewards or points or or something like that and you know that you can handle it, your credit can handle it, your finances can handle it, then there's nothing wrong with with using credit um in a in a positive way If you can pay it off. Okay. And one of the, one of the things you said is don't let your money that is on the credit card exceed 30% of your credit limit. So what advice do you have for those that are trying to balance their student loan payments with those credit card payments? And it's hard because a lot of them are already over that 30% that you mentioned. Yeah. So that 30% really, it really um takes the most effect with actual credit card debt, not necessarily installment loans like student loans. So I would focus as far as increasing your credit score of looking at that 30% with those student loans and then doing the best that you can with the actual student loan payments themselves. So don't stress yourself out about Trying to get like a card payment or your student loan payments down to that 30% really focus on your credit card being less than that 30% of the available credit limit. And one of the ways that your grace, OK Grace is a good thing, not too much of yourself. And of course one of the ways to do that is by saving more so with inflation being so high, what saving habits or strategies do you have to help people? Yes. One of the easiest and most effective ways to save is to save automatically. So if you are getting a paycheck um splitting your direct deposits and having some go directly into a savings account even if it's $10 or $5, there is no uh no amount that's too small when it comes to saving because the focus is getting you in that savings habit not necessarily the um amount that's in there. I know a lot of um personal finance experts like to say oh you have to have 3 to 6 months of expenses um in an emergency fund and that's great for the people that can do that. But a lot of us that have low to moderate income earners, you know teachers and and and those that work in the health care system. Um We don't have that that ability right now. So the goal is just getting in a savings habit, we like to say start with the goal of $500 if that 3 to 6, Six months, that's 6-9 months feels overwhelming to you again, the focus is saving automatically, so doing it where you don't have to manually make the transfer to savings and to focus on the actual habit of saving something that you can achieve relatively quickly. Like you said, everything counts. Here's one for you. Take the change out of your pocket every day at the end of the day and put it in a jar. That savings will eventually add up to. My parents. Did that several hundreds of dollars. Yes, ma'am. There you go. Everything helps. Alright Kevin Mccallister, a young director of America Safe. Thank you so much for your time