Are you sick and tired of being sick and tired? When you’re deep in debt, you’d do anything to speed up the payoff process. And if you’re working on your student loans, we understand how you feel! You’d probably like to know something you can do today to get your debt snowball rolling faster than ever. Your best strategy could be to refinance.
What Is Student Loan Refinancing?
Student loan refinancing is an option you can use as a borrower to get a better interest rate or a faster payoff—or both—by switching lenders. It’s basically a chance to swap your current deal for a better one, with better terms. If you’re eligible, the new lender will pay the current one off. From there, you’re in a new deal with the hope of leaving debt behind ASAP!
The more money you throw at your loans, and the more often you pay, the sooner you can shout, “I’m student loan debt-free!” How terrific would that feel?
If your student loan is your smallest debt, maybe you’re already sending all your extra money toward it. Good job! Or maybe it isn’t your smallest, so you’re just sending the minimum while you attack smaller debts. In those circumstances, you’re killing it! But no matter where it ranks in size, there are two ways refinancing your student loan could help:
You might be able to get a better interest rate. With the right lender, you could lower your interest rate. It will probably mean a bump in your minimum monthly payment, but it will also mean paying far less interest over the life of the loan. Loan payments are painful enough. What’s worse is having to look at your monthly statements and see how much extra money a high interest rate is draining from your budget.
You might get a faster payoff date. Another way a refi can help is by shortening the term of your loan. Even if the rate isn’t changing one decimal point in your favor, a 10-year term is always better than a 15. By refinancing for a shorter loan term, you’re guaranteeing you’ll pay it off a lot sooner. And that ought to be your primary goal.
Ask Yourself: Should I Refinance My Student Loans?
With student loan refinancing, we’re talking about the possibility of paying less interest and paying your loans off sooner. What’s not to like, right? Here’s the deal. There are actually several things that have to be true before we would recommend signing up for a refi. This is your checklist:
It must be completely free to make the change. No application fees. No origination charges. The new lender wants your business. Be sure they earn it!
You must keep a fixed rate if you have one, or change over from a variable to a fixed. Variable rates are a terrible deal for you or any borrower because it’s impossible to know when the rate might go way up. You need to know that your rate is fixed so that you can plan a date with student loan freedom as soon as possible.
You must either keep the same term for the refinanced loan as you have currently, or if possible, shorten it! Why would you add more years of loan slavery to your calendar?
You must lower your interest rate. This is really the key to the whole package. If you’re not getting a better rate, you might as well stay gazelle intense with your current lender and skip refinancing.
Start the Application Process With a Quality Lender
The vision for how to refinance student loans is pretty clear—you’re looking for a deal that will help you pay it off sooner than you would in your current arrangement. But consider this: Not all lenders are created equal! In fact, your financial future demands that you only work with a quality lender as you look to refinance.
Ready to get rid of your student loans once and for all? Get our guide.
One of the main things to look for is a lender who doesn’t try to sell you other loan products. Why not? Because you don’t climb out of a hole by digging deeper. And you can’t beat debt with more debt! The last thing you need is a lender who wants to peddle more of the very poison you’re trying to detox from. Debt is the problem, and you’re trying to fix that.
Look for a lender who handles nothing but student loans if possible. The best businesses are usually those that do exceptionally well at just one thing.
Compare Rates
As you look for the right lender, the main indicator is going to be the interest rates offered. To repeat the main idea again: You’re trying to pay off your debt faster. You do that in two main ways: lowering your interest rate or shortening the term. Ideally, you’re refinancing to do both!
Since your priorities are shortening the life of your debt and containing how much you pay overall, the size of your monthly minimum is not the main focus. If anything, agreeing to a slightly higher monthly payment can only help you. That’s because it will force you to budget with debt freedom in mind. Bigger payments today will mean less of your precious time and money getting drained by your student loans. This is what winning with refinancing looks like!
Submit Documents and Complete the Application Process
Let’s say you find a great lender and it looks like you qualify for a refi that will actually help you move the needle on your student loan. Fantastic! Now it’s time to apply. You’ll just need to share some basic info with the lender about your current loan, along with a few docs about your financials. This is what most lenders will need from you:
Your name and address
Proof of residency
Proof you graduated
The type of degree you earned
The name of your school or schools
Proof of employment (pay stubs, tax returns or a W-2 form)
Your income
How much you pay monthly for housing
Loan or payoff verification statements, including your total amount of student loan debt
Every lender won’t require all of these, but most will want a combination that’s similar. Next they can use your income and credit score to provide you with some options on repayment terms. Always go for the shortest available term, with a low, fixed rate!
Pay Off Your Student Loans Faster
The whole point of refinancing is to accelerate your payoff of all your debts. That absolutely includes your student loans. We’re okay with student loan refinancing because it can let you work the debt snowball regardless of where that loan ranks in size. Even if it’s not the current focus of your gazelle intensity, you can get more traction on it with a better interest rate or shorter term.
Keep in mind that head knowledge is only 20% of smart personal finance. Everything else is about smart behavior—making smart choices, forming good habits, and keeping focused on a long-term plan. Refinancing can help you with all of those. Just be sure that the new and better terms it gives you don’t allow you to lose momentum in your debt-free journey.
Guide to Getting Rid of Your Student Loans
Having trouble keeping up with your student loans? Learn how to budget for your monthly payment and pay off your loans once and for all with this helpful guide.
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