6 signs you should consider refinancing your student debt
You’ve graduated from college and you’re finally making decent money. Suddenly, you realize what you’re earning isn’t really what you’re receiving. Insurance, taxes and groceries are eating up your money. And then, there’s your student debt.
Tackling your student debt is a universal pain most college graduates have to face. However, deciding on whether to refinance your debt can make this process less stressful. If you’re considering refinancing, here are six signs you should consider.
1. Sacrificing federal student loan benefits
If you have federal student loans, refinancing your student debt means switching to private loans. This comes with advantages and disadvantages; the biggest one being whether it’s worthwhile to lose federal student loan benefits. With private loans, you’d lose the opportunity to be enrolled in benefits like deferment and forbearance. However, switching into private loans will give you more autonomy over how you’d like to pay for interest rates.
2. Dealing with fixed versus variable interest rates
When considering refinancing your student debt, the most important factor is to look at fixed versus variable interest rates. For the duration of your loan, fixed interest rates will stay the same, while variable interest rates can either increase or decrease based on the market.
If market interest rates are low and you have a high income, consider refinancing to a variable-rate loan, as this will make repayment faster. However, if you’re committed to repaying over a longer time frame, sticking to a fixed interest rate will be a safer option for you.
3. Enrolling in a short-term versus a long-term repayment plan
Depending on your financial situation, another big factor to consider is committing to a short-term versus a long-term repayment plan. If you’re someone with a high income, consider a short-term repayment plan — you’re repaying more each month but have lower interest rates to deal with. If you’re someone with a lower income, you’d have to repay less each month, but the process is longer, and you’d also have to account for paying interest rates for a longer period of time.
4. If repaying student loan debt is eating into your monthly finances
If you can’t afford your monthly student loan payments or have little money left after paying, it’s important to consider refinancing your debt. Refinance to a longer repayment period to have some breathing room; however, keep in mind that this includes having to pay more for interest rates.
5. You want to consolidate your loans
If you’re having trouble keeping track of repaying multiple loans, refinancing to consolidate your loans into one will allow you to streamline your payments. By doing this, you’re not paying for multiple bills, but just one bill.
6. You have a strong credit score
If you’re thinking about switching to private loans, having a strong credit score is a must, typically a FICO score of 740 or higher. If you’re seeking to improve your credit score, consider sticking with federal student loans before switching to private, as switching will be irreversible.
Bottom line
There isn’t a right or wrong decision when considering refinancing your student debt, as it depends heavily on your financial situation. For some people, it’s more convenient to just get their debt over and done with and have a short-term repayment plan, while others prefer something more stable with a longer repayment plan. These signs will allow you to choose whether it’s better to refinance or not.
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