The coronavirus pandemic has changed the landscape of consumer spending. For example, TD Ameritrade found that gym cancellations are up 563% from 2019, and credit card issuers have updated benefits to move away from travel and more toward food delivery and subscription services.
In particular, almost 7 in 10 Americans have multiple subscription services, according to Paysafe, and 28% have four or more subscriptions they pay for on a regular basis.
But an increase in food delivery orders and an increase in subscription services could have an impact on our ability to keep up with strategies for paying down debt. Here’s what you need to know.
Why subscription services and food delivery are on the rise
COVID-19 has wreaked havoc on the U.S. economy, forcing small businesses to close and tens of millions of workers to file for unemployment benefits.
To accommodate for social distancing, many businesses have also switched to having their employees work from home instead of in the office — Stanford University found that a whopping 42% of the labor force is working from home.
Because of the changes to what consumers can do (or feel comfortable doing), money spent on eating out has gone down, coupled with an increase in food delivery at home.
Also, because Americans are spending a lot more time at home instead of traveling and doing other activities, there’s been an increase in subscription services to keep people entertained.
How to manage extra monthly entertainment and food expenses
It’s hard to say exactly whether these changes are good or bad. Social distancing and self-isolation during the pandemic have sparked conversations about mental health issues and how people are trying to cope with what’s happening.
And sometimes, ordering in instead of cooking or binging your favorite show may be exactly what you need to get through the days, weeks and months.
But it’s important to try to find a balance between those expenses and your other financial goals and obligations, particularly student loan debt.
The good news is that many federal student loan borrowers aren’t required to make payments on their accounts until the beginning of 2021 — though, depending on future economic stimulus packages, that may be extended.
But the payment suspension won’t go on forever, and if you don’t qualify for it, you’re already facing the dilemma of how to spend your money without missing payments.
The most important thing you can do is create a budget. This involves writing down your income and expense numbers from the last few months to get an average. Then you’ll categorize each of your purchases to get a better idea of where your money is going.
If you see that you’re spending more and more on food delivery services, it may be a good time to look for ways you can cut back in the form of more inexpensive restaurants or by limiting your orders.
And if you notice that you’re paying for subscription services that you’re not using, consider canceling, or at least sharing the subscription with a family member to cut down on your monthly costs.
How to pay off student loans through cost-cutting techniques
Just about every student loan borrower has asked themselves how to repay student loans more effectively, and that question may be more urgent during times of financial difficulties. If this describes you, here are some things you can do:
- Look for the unnecessary: Spending money can be a form of coping for some, but it can also result in unnecessary spending that doesn’t add much value to your life. Take a look at your subscription services and decide if it’s worth it to pay what you’re paying every month. Also, look for times when you’ve seen an increase in food delivery out of want instead of necessity. These areas can be a great way to pare down.
- Get on an income-driven repayment plan: If you have federal student loans, you don’t need to start making payments again until Jan. 2021 (barring any future extensions of the federal loan payment suspension). Once that happens, though, getting on an income-driven repayment plan could reduce your monthly payment to the point where it’ll be easier to afford them based on your budget.
- Do everything possible to avoid missing payments: Missing a student loan payment could not only hurt your credit score but also cause problems with your lender. With a defaulted federal student loan, for instance, the entire balance of what you owe is due immediately, and you’ll also have to pay additional collection charges. It’s possible to rehabilitate defaulted loans, but by then, a lot of the damage is already done. So cut whatever you have to from your budget and seek financial assistance, if necessary, to ensure you pay at least the minimum amount every month.
Another path to consider — one of the most prominent ways for how to repay student loans — is by refinancing them.
One of the positive consequences of the pandemic has been a reduction in interest rates, including student loan refinance rates. As a result, it’s more possible than ever to find a student loan refinance at a lower rate than what you’re paying right now.
By refinancing at a lower rate, you’ll not only save money but also make your monthly payment more affordable. You’ll also get some flexibility with your monthly payments, as private student loan companies typically offer repayment terms ranging from five to 20 years.
Just keep in mind that refinancing federal loans will cause you to lose certain benefits, including access to loan forgiveness programs and income-driven repayment plans. So think carefully about your situation and the options available to you to make a decision.
You can compare student loan refinance rates from multiple lenders in one place using Purefy’s rate comparison tool.
The bottom line
The recent increase in food delivery and subscription services has been a key indicator in understanding how the coronavirus pandemic has affected consumer spending habits. However, if you’re not careful, you could end up spending more on those expenses than you need to.
Take some time to see where you can reasonably cut back to make sure you’re still meeting other financial obligations, including your student loan debts. Also, take some time to consider student loan refinancing as a way to craft the student loan repayment plan that works best for you.