In the US, nearly one-third of all students need to go into debt in order to pay off their education fees. According to Education Data, student loan debt in the United States totals $1.75 trillion and is growing extremely fast. Plus, there are 43.4 million borrowers who have student debt. These numbers are astounding and clearly point out an issue so many young people are facing- paying off their debt as quickly as possible.
Students take loans to cover their college education. Then, they spend years paying the loan back and trying to reach a point of zero debt. Luckily, cryptocurrencies might help you reach that point. Bellow, we’ll discuss how you can pay off your student loans with crypto.
Let’s get started.
What Are My Options?
If you have some assets in a cryptocurrency, you may be thinking about using it to pay off your student debt. That is a great idea. However, you need to know what are your options in order to make this happen.
You can do one of the following:
- Sell your crypto and use the money to pay off your debt.
- Use your current crypto assets to get a decentralized finance (DeFi) loan.
Below, we’ll discuss the pros and cons of both of these options. We’ll also explain how exactly can you make each one work best for you.
Selling Crypto for Cash
If you’re lucky enough to have any assets in crypto, you can start thinking about selling them and using the cash to pay off your debts. Depending on the cryptocurrency you have, and the amount you owe, you’ll have to create the best combination.
Here are the facts:
- The average federal student loan debt balance is $37,113.
- Bitcoin is worth around $37,743, Etherium $2,645, and BNB $370.
That means that one Bitcoin could erase your entire student debt while with other currencies, you’d need a bit more than just one.
When you decide you want to sell, here are the steps you’d need to take:
- Check the market to see how much your crypto is worth.
- Continue checking for a couple of days to see if there’s a growing tendency and choose the best moment to sell.
- Consider converting into another crypto if it’s more convenient.
- Sell using an exchange service or directly to the person on the other side.
Selling your crypto is probably not something you’ll enjoy doing, especially if there’s a growth tendency. But, if it can pay off at least a part of your student debt, it’s worth it.
Getting a DeFi Loan
The second option you have s much more convenient and doesn’t require you to sell your crypto altogether. Instead, you’ll be using your current assets in crypto to get a loan. To do so, you’ll use one of the many DeFi apps that are designed specifically for this purpose.
Here’s what you need to know.
What Is the Process?
To get a DeFi loan, you first need to choose the platform or app that you’ll be using. Once you do so, you will deposit the current crypto assets that you have to get a loan. These assets will be considered collateral and will guarantee you get the loan.
Once the funds become available, you’ll use them to cover your student debt. You’ll either cash out or pay in the debt in crypto.
Then, you’ll be returning this loan at your own pace, without scheduled payment deadlines. Naturally, there will be an interest rate. But, once you pay off the loan, your collateral will be refunded to you.
What Are the Benefits?
Yes, you are taking a new loan in order to pay off an old one. So, you’re probably wondering why would you do that in the first place?
There are benefits to taking a DeFi loan, and we’ll discuss them below.
- Fast Processing Speed– Your DeFi loan is digitally-enabled, backed by cloud-based services, and supported with analytics and machine learning. This makes the whole process more secure and fast.
- Good Interest Rate– In most cases, DeFi loan interest rates are extremely low and much better than the standard bank loan interest rate.
- Flexible Repayment Dynamics– With a standard bank loan, you have fixed deadlines for your monthly payments. With DeFi loans, this is more flexible. You choose when to pay and how much. Plus, they have nothing to do with your credit score, since they’re done through smart digital contracts.
Keep in Mind
There are other details that you need to bear in mind when cashing out your crypto or taking a DeFi loan.
Firstly, you need to know that the person lending you the funds, also known as the DeFi lender, will typically want you to have at least 50% of the loan in your crypto assets. Do, if your student loan is $30.000, your collateral will need to be approximately $15.000 in crypto.
Next, it may happen that you need to convert your crypto assets before taking a DeFi loan. This is to adjust to the DeFi platform’s crypto of choice.
Also, if you decide to sell your crypto and cash out, know that it is considered a taxable event. You’d need to cover additional taxes costs to avoid being penalized.
When selling peer-to-peer, be careful not to get tricked. Make sure you put the agreement into writing. Check out college paper service if you need to find help for official document writing.
Finally, none of the two options we’ve mentioned are risk-free. If you sell your assets, you can miss out on huge gains since the crypto market is constantly changing. And, if you take a DeFi loan, and the crypto prices drop down, you risk losing the required amount for the threshold and your loan becomes due sooner than you expect.
As you can see, crypto can help pay off your student debt and move on to the next chapter of your life. It is, however, important that you carefully analyze all your options and decide what would be the best option for you.
Hopefully, we helped you understand everything there is to know about using crypto to eliminate student debt.