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Americans are staggering beneath the weight of their student debt. In 2018, the average student graduated with just shy of $30,000 in student loans. In total, Americans are $1.53 trillion in debt just to go to school.
If you are one of these Americans, you may be feeling the squeeze of loan payments on your budget each month. You may also be wondering if there is anything you can do to better manage your debt.
Refinancing your debt may be a good way to better handle your payments and even save money. Let’s take a look at five reasons why you might consider refinancing your student loans.
1. Consolidate Your Debt
It’s not uncommon for student loans to end up coming from several sources. Many people take out small loans as the need arises. Thus, you may have to keep track of 3 or 4 loan payments each month.
You already have enough bills you have to think about. Remembering multiple student loan payments is an extra stressor that you don’t need.
You can refinance by taking out one loan large enough to pay off all your loans. Now you only have one loan payment to worry about each month, making it easier to keep track of.
2. Free a Cosigner
Since many people taking on student loans are young, they don’t have much (or any) credit history yet. For this reason, it is common for someone to cosign on the loan. This means that they lend the borrower their good credit score as well as they are responsible for payments if the borrower can’t make them.
However, this loan shows up on your cosigner’s report as part of their credit utilization, affecting their ability to take out their own loans. Thus, you may wish to free them of this obligation now that you have better financial footing and have your own (hopefully good) credit score to work with.
The other way to release them from the obligation is to refinance law school loans with an entirely new lender. The new loan terms will be based on your credit score alone and may not be as favorable, so you’ll need to consider both your current offer and the new offer to determine whether this is a good plan for you.
3. Change Your Interest Rate
Another good reason to refinance is when you can get a loan with a lower interest rate. If you’ve been making your payments on time, your credit has probably improved over the last few years. You may now qualify for a loan with better terms.
But do you dread the process of looking for a better loan? Shopping around and comparing loan terms can give anyone a headache just thinking about it.
To make it easier you can use a refinance aggregator to do all the heavy lifting for you. There’s a lender called Credible I read about on the Biglaw Investor that explains how it works and find out how much you could save, while making it easy on you since they check the rates from multiple lenders at the same time.
4. Change Your Repayment Period
If you’re finding it difficult to make your monthly payments, refinancing could be a way to lower them. This can happen by reducing your interest rate, as we just mentioned.
But what if you don’t qualify for a lower rate? You can lower your monthly payment by extending your repayment period.
Use caution with this method, extending your repayment period without a reduction in interest rate means you’ll pay more over the life of your loan. If you’re struggling to make your payments, however, this option can give you some relief.
5. Change Your Lender
After you’ve been with your lender for a while, you may be unhappy with them. Perhaps they don’t have prompt customer service or their system for payments is inconvenient.
Also, some lenders are downright bad lenders. They may be rude when you call up or even give you misleading information.
Regardless of why you don’t like your lender, refinancing is a good way to change it up and work with a different one. Just be sure to thoroughly do your homework before choosing a new lender. You don’t want to exchange a bad lender for a worse one.
Should You Refinance Your Student Loans?
Only you can decide if it’s worth it to refinance your student loans. Here, we’ve given you a few scenarios when refinancing could benefit you, but it will depend on your individual situation.
Remember, paying off your debt and keeping your credit intact should be a primary goal. If your main reason for not being able to meet your loan obligations is that you take several expensive vacations each year, you may want to re-examine your priorities.
Of course, many people struggle because life is expensive these days. If this is you, refinancing your student loans could help put you on track to getting out from under that debt and breathing a little easier.