When times get tough financially, it is easy to let your bills fall behind. In these times, your bank might be able to help you to get out of trouble. Forbearance is an option that can help you get your bills current and save your credit in the process.
Forbearance Basics
Forbearance is a type of loan deferment that is usually offered in conjunction with student loans and, less commonly, mortgages. When your loan is on forbearance, you are not responsible for making monthly payments, giving you the chance to catch up on past due payments, or resolve other aspects of your financial situation that affect your ability to pay the loan in question. However, interest does accrue on a monthly basis during forbearance.
Forbearance Benefits
The most common reason why you'd want to apply for a forbearance is if you're having financial difficulty and you're unable to meet your monthly payments. In this case, placing your account on forbearance can allow you to save money and avoid a potentially disastrous situation in which you're consistently late and unable to catch up. Such a situation would not only result in late fees and collection activity, but it could also significantly damage your credit.
Importance of Credit
If you're having trouble meeting your student loan obligations, your problems may be much deeper than owing more money now. A late payment on your student loan can stay on your credit report for seven years, making it harder for you to obtain credit in the future. If you need to buy a car, or if you want to apply for additional student loans to continue your studies, the damage you do to your credit through your student loans can be a deterrent to your future plans.
Forbearance's Impact on Credit
Should you go on forbearance, the terms of this arrangement are not indicated on your credit report. However, the fact that you will go months between payment is noticed by credit bureaus, who may see this as a bad sign for your overall credit profile. That said, the overall impact of forbearance is felt in the late payments you won't be making. You'll only take a slight hit, if any, for not making payments as a result of an agreement with the bank, but the impact of several late payments could be devastating. Avoiding this route is a far better option than running late every month and destroying your credit for the future.
Applying for Forbearance
If you're interested in applying for forbearance, you should contact your student loan bank and see what types of options they provide. For example, Citibank offers forbearance to students whose monthly student loan payments are an excessively high percentage of their income, students who are having financial difficulty or students who are currently teachers in low-income areas. Each lender has different options, as well as lengths of time, you may be able to use forbearance benefits. To apply, you'll need to provide proof of your financial hardship, which may include pay stubs, student loan statements or a written statement describing your financial situation.
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