Personal debt is experiencing a surge, particularly with Millennials and Generation Z. Having grown up in an environment where online services are prominent, using cryptocurrencies is as dominant today as using credit cards once was. Digital investing is a popular trend among Gen Zers and Millennials, which is helping to accelerate the interest in digital currencies.
Because of this, younger generations are looking to see if crypto-backed loans can help them manage their finances and settle debt. Moreover, they want to do this without needing to sell off their crypto holdings. One such debt type is the maligned student loans.
Debt repayment via crypto assets
A core trait of the aforementioned generations is their knowledge of and interest in digital products and services. This affinity extends to cryptocurrencies. What pushes these groups closer to leveraging their crypto-assets is the combination of continuous debt, an unclear future, and the open-mindedness of new digital financial services and products.
Paying down student loan debt with a crypto-supported loan can prove to be quite the money saver. NerdWallet claims that private student loan interest rates can reach 14.5% for fixed-rate loans and roughly 12.99% for variable-rate loans. Compare this to a BlockFi loan, which can start as low as 4.5%. Taking this into consideration, a private $50,000 loan over 10 years has $530 payments per month on average. In comparison, with BlockFi, there are $354 payments per month over one year.
These crypto-backed loans are rather fast and very efficient to assemble and manage. To elaborate, utilizing crypto-based loans can be a beneficial way of taking control of debt. If the loan maintains a strong loan-to-value (LTV) ratio, then collateral will be returned after paying down the balance.
For crypto holders with student debt, not using their crypto-assets to decrease their immediate outgoings and establish more dynamic systems to handle their long-term finances could be a missed opportunity. It could completely rejuvenate their financial health.
Using student loans for crypto investments
Not only are students wondering if crypto can help them pay off these loans, but they are also doing it in reverse. Put simply, they are hoping to make crypto investments by utilizing student loans. According to a study conducted by the Student Loan Report, over one-fifth of university students with student loan debt hinted that they put their borrowings towards digital currency investments. One of the tokens they regularly invest in is the crypto big name, Bitcoin.
Elyssa Kirkham, of Student Loan Hero, a website for managing student loans, states that a student spending their student loans on cryptocurrencies essentially violates their agreement with the government. Moreover, according to student loan expert, Mark Kantrowitz:
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