It's no secret that refinancing your student loans could save you a great deal of money. At least 40 million Americans have student loans. When you refinance student loans, it could lower your interest rate, shorten your term, and make your payments more flexible and manageable overall.
When to refinance student loans is the question, though. Should you pay on your student loans for a while or refinance immediately after your grace period is up? Should you wait to refinance until your student loan payments become more of a financial burden? While these popular questions don't have a right or wrong answer and the absolute best time to refinance your student loans can vary from person to person, here are a few general scenarios that would make it an ideal time to consider refinancing your loans.
Interest Rates are Low
One of the best times to refinance your student loans is when market interest rates are low. Locking in a fixed interest rate that is lower than what you are currently paying will instantly help generate savings over the life of your student loan repayment process.
Refinancing rates are at an all-time low right now, so if you feel like your current interest rate is too high, you might want to calculate your student loan refinance with today's rates and get offers that can save you money on interest and allow more of your money to go toward paying off the principle balance.
Your Credit Has Improved
If you want to take advantage of lower interest rates, the first thing you should do is check on your credit score. If your credit score has improved or is above average, you'll have a better chance at getting a lower interest rate when you refinance your student loans.
Consistently paying your student loans on time each month, diversifying your credit accounts, and allowing your credit length to increase over time are all great ways to build your credit score up so you can qualify for a better offer when you apply to refinance. If your credit score has shot up above 700, now could be a great time to refinance your student loans since you have a solid and competitive credit score.
You Landed a New Promotion at your Job
When you first graduate college, your professional life might be in disarray as you strive to land a job that can pay you a sustainable wage. However, as you get established and start making more money, you will be able to put more toward your student loans.
If your goal is to pay off your student loans quickly rather than taking the whole repayment term to free yourself from that debt, refinancing when you start earning more money is a smart choice. If you recently got a raise or promotion at work, you can refinance and lower your student loan payment while putting that extra income toward the balance to pay it off sooner.
You've Paid Off Other High-Interest Debt and Feel More Financially Stable
Student loan debt can be a burden, but generally speaking, it can be the lesser evil when compared to credit card debt and other potentially high-interest debt like a personal loan or car loan.
While it's important not to neglect your student loans and continue paying them each month on time, other high-interest debt may become more of a priority at first. When you pay that debt off, however, you'll be able to focus more time, energy, and money on figuring out how you will pay off the rest of your student loan balance.
Refinancing after you've paid off other types of high-interest debt is a good idea especially if you have Federal student loans. When you have less debt, you become more financially stable and it decreases the risk of needing government relief programs like forbearance and deferment.
If you feel as if you're in a better place financially, and you won't need those programs, you can confidently give up those government options as they won't be available anymore once you refinance with a private lender. On the contrary, you'll most likely receive a lower interest rate and a more controllable monthly payment.
Deciding when the perfect time to refinance your student loans will depend heavily on your personal circumstances. However, if you want to pay off your loans quickly and reduce the amount of interest paid, recently boosted your credit score, or feel financially stable enough to forfeit any type of student loan relief you could receive from the government, refinancing your student loans could help you pay your debt off in a much quicker and more efficient way.