Making any decision that has to do with your finances is a big step and an important task. Finances are tricky, and it’s crucial to approach it in the right way and weigh your options According to CNN, student loan debt in the United States has recently reached $1.5 trillion, which means there are a fair amount of college graduates still in debt. While no one likes to be in debt, lots of people are constantly looking for new ways to approach paying off their student loans in an efficient way. Refinancing your student loans is an option when trying to save money in the long run, so it’s definitely something to consider.
When you start to think about refinancing your student loans you may be on the fence about it because it may or may not be the best step for you. You’ll want to way the pros and cons of refinancing to decide what is the right decision for you and your finances. Before making the decision you may want to think about a few things like, how much money you owe, what you can afford, and if there has been a change in your credit score or salary recently.
Asking yourself these questions will help steer you in the right direction if you should refinance and who you should refinance with. Overall, there are many benefits to refinancing your student loans that have a positive outcome on you and your financial state.
The Benefits of Refinancing Student Loans
If you have a secure job, emergency savings, strong credit, and are unlikely to benefit from forgiveness options, it may be a choice worth considering if you’re looking to lower your payments.
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Let’s look at the other benefits of refinancing your student loans.
1. Lower Monthly Payments
Let’s be honest: who doesn’t want to save money on their monthly bills? One of the most popular reasons people choose to refinance their student loans is to lower the monthly payments. When you refinance, you may have a lower monthly payment which will help you save money each month that can be used in other areas such as paying bills, paying the interest faster, or putting into a savings account.
Lower payments mean you may be able to afford to make an extra payment every once in a while, and you’ll save overall on the amount you owe. Here is how much you can save by refinancing your student loans:
2. Simplify/Consolidate Loans
Depending on who you choose to refinance with and what type of loan you have, many companies give the option to consolidate multiple loans when you choose to refinance. Consolidating your student loans means you are taking different loans that have different interest rates and are combining them into one new loan.
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The benefit of this is you are simplifying your debt and making it easier on you every month for payment purposes. You’ll have one low monthly payment each month for your student loans instead of multiple to keep track of.
3. Release Co-signer
When you first started college and applied for student loans, you may have had someone co-sign to help your chances of getting approved. Your parents or another relative might have co-signed your loans if you didn’t have enough credit built up to make the process of borrowing easier. At the time, it may have been the only chance to attend college but now that you are out of college, you’re likely in a different financial situation with more credit built up and a yearly salary.
Refinancing will allow you to release your co-signer so you are the sole individual listed on the loan. This benefit is extremely important because your co-signer is just as responsible for the loan as you are. So now that you are capable of paying your loan, it is time to release your co-signer from legal obligation.
4. Change the Loan Term
Refinancing your student loans will allow you to explore more options for how long your loan term is. There will be options to either shorten your loan or to extend the loan. The repayment plans could come in 5 to 20 year sections depending on what you are looking for. It is important to look at your financial standing now and potential financial standing in the future before choosing a new loan term repayment plan.
The longer the term, the more in interest you will pay but the shorter the term means there will be a higher monthly payment. You can take the time to weigh the pros and cons of each option the refinancing company is giving you to decide what is the best choice.
5. Lower Interest Rate
Josh Hastings, founder of the personal finance blog MoneyLifeWax, says when it boils down to it, paying off student loans is a really simple process once you understand how student loans work.
“Another option is to look into refinancing to reduce interest rates, but always make sure you know the pros and cons of federal versus private student loans,” Hasting says.
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In fact, another popular reason that people choose to refinance their loans is to lower their interest rate. When you first applied for loans for college you may have had bad credit or even no credit at all, making your loans have a high-interest rate. Depending on where you are at right now, you could have had a salary increase, built up your credit, or even worked on your credit for a better score.
No matter what your situation is, refinancing will help lower the interest rate which helps you save money in the long run. There is no set interest rate that every individual receives, but you can research potential companies and they will give an overview of what their fixed interest rates range from.
Benefits from New Refinancing Companies
When you choose to refinance your student loans with a new company, they may have a set of benefits for their customers. Some refinancing companies have options to make bi-weekly payments to help with interest or to even have the flexibility to skip a payment during a difficult month. It is good to research your potential companies before choosing who to refinance with and base your choices on the benefits they give.
The choice to refinance your student loans can be a great way to tackle college debt and lower your monthly payments. It can help you avoid going past due on your payments and prevent wage garnishment on student loans. After all, everyone wants to save money, and refinancing could be the option for you to pay off your debt sooner and possibly build up your savings a little bit more. While refinancing your loans may not be the best option for everybody, weighing your options will help decide if refinancing might be good for you and your bank account. With lower interest rates, refinancing may help you save a lot of money on your overall student loan debt.
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