Student debt is good
debt if it makes it easier to make a better living after school. One of the
hazards of student debt is that it’s generally offered to people with little
credit history and a short understanding of managing debt. If your student debt
is cutting too far into your living expenses, a refi can help.
Refinancing your student
loans can also include a consolidation step. For example, two loans that
require you to pay $250 per month each can be combined for a total monthly bill
of $350 or $400, freeing up at least $100 a month. If you run out of money days
before payday, a consolidating refinance can be helpful even if it doesn’t save
you any interest.
In addition, refinancing
your student debt can lower your interest rate. For example, before you apply
for a student loan refinance, make sure you know your credit score and the
requirements of your potential lender. A student loan refinances a hard pull on
your credit score; don’t apply where you know you won’t be accepted.
If your monthly income
meets your needs, a student loan refinance can shorten the amount of time you
have to pay off the debt. In the scenario above, you can consolidate your
student loans and keep paying the $500 total, putting $100 or $150 per month
against the principal.
Another option is to
lower the student loan payment and put that extra cash against another debt. An
excellent way to track this is to create a spreadsheet that allows you to sort
your debt by
● Entity owed
● Monthly payment
● Interest rate
● Total debt
If you’ve got enough
coming in to meet your needs, sort your list by interest rate (avalanche
method) and wipe out that debt as quickly as you can if you can’t get the
lender to lower your rate. Leave the account open to avoid hurting your credit
rating. Next, sort your list by total debt and dump the extra money against the
smallest debt, rolling the payments onto the next highest total (snowball method).
You can also sort by the highest monthly payment and tackle that debt to free
up even more cash for savings or additional payments.
If your credit cards are
closed to maxed out, your utilization rate can hurt your credit rating.
According to Lantern Credit by SoFi, “Small changes in your financial choices
can make it easier to qualify for lower student
loan refinance rates.”
Set simple targets to
improve your credit score. The first step is to pay bills when they come in,
rather than waiting for payday and risking a late fee. If you’ve had anything
go to collections, do your best to set up a payment plan and wipe out those
debts. Address credit cards close to maxed out to lower your credit utilization
rate. Finally, add something to your savings each month.