Have you ever had trouble saying yes to something? Maybe it was that person you went on a few dates with in college. You just couldn’t commit to the relationship. Maybe it was when your friends wanted you to agree to go out on the weekend, several days in advance. Maybe it was agreeing to and pre-paying for a vacation several months in advance. Trust me, I get it. Commitment can be scary. The thought of being stuck on one path can be down right terrifying. On the other hand, commitment, when done correctly, can be a beautiful thing. I can think of two beautiful commitments in my life- marrying Danny and refinancing my student loans. Below are all of the reasons why you should refinance your student loans. And I’m including the reasons that you shouldn’t, because it is a big commitment and it is not for everyone.
If you have been sitting on the fence about refinancing your student loans, unable to commit because it is scary, trust me when I say, I TOTALLY understand. Depending on your student loan balance, refinancing your student loans is a really big decision. Here are all the reasons why I (really me and my husband) decided to take the plunge and refinance our student loans.
REASONS WHY YOU SHOULD REFINANCE YOUR STUDENT LOANS:
YOU’LL SAVE TONS OF MONEY.
The biggest benefit of refinancing your student loans is that it should save you TONS of money. This was a HUGE reason why I refinanced my student loans. In fact, because my husband and my combined student loan debt was well over $600k, we realized that refinancing our student loans and paying them off ahead of time will literally save us HUNDREDS of thousands of dollars. If you are curious about how much refinancing your student loans could save you, you can check it out by clicking here. If you are wondering HOW it saved my family hundreds of thousands of dollars, the three main factors are 1) I qualified for a MUCH better interest rate than I had with the federal government. I had Grad PLUS loans with interest rates as high as 7.9%. And I qualified for refinanced rates at 4.75%. 2) I had large balances on my student loans- this fact combined with my high interest rates meant that I was racking up thousands of dollars of interest every year, and 3) since my interest rate was lower, my monthly payments were lower which meant I could afford to make extra payments and pay off my loans even faster (saving even more in interest).
TIP: if you have bad credit or your current interest rates aren’t that high, refinancing your student loans probably won’t save you much money. Wait until your credit score improves to refinance your student loans.
IF YOU CAN AFFORD THE PAYMENTS…
One of the first and most important things to consider in refinancing your student loans is whether you can afford the payments. When I finally refinanced my student loans I knew I could afford the payments. I knew this because I spent one year refining our budget, cutting expenses anywhere that we could, and making sure our income was where we needed it to be to afford our payments. I felt secure in my job and my husband felt secure in his which meant our combined income was fairly stable. After checking to see how much our new monthly payments would be if we refinanced, we knew we could swing the payments.
YOU’RE SURE YOU DON’T WANT OR NEED INCOME DRIVEN REPAYMENT.
Another one of the reasons why you should refinance your student loans is if you feel confident you are not going to want any of the benefits available with having your loans in the care of the federal government, such as one of the income-driven repayment plans. While each of the income-driven repayment plans were attractive to me before I studied out my options, I quickly realized that path was not for me. I knew I didn’t want my student loans hanging over my head for 20-25 years. I was skeptical (whether that is justified or not) of my loans actually being forgiven by the government (since no one actually has had theirs forgiven yet). And I just really don’t want to be taxed to death the year my loans are forgiven. If you aren’t sure about other repayment options, you can check out our student loan series here, where we break down each of the federal student loan repayment options. Some of these options will make more sense for you than refinancing your student loans depending on how much debt you have and what your income is.
YOU HAVE A LOW DEBT TO INCOME RATIO
Finally, another reason you should refinance your student loans is if you have a low debt to income ratio. Your debt to income ratio is all your monthly debt payments divided by your gross monthly income. A general rule of thumb is that you want your debt to income ratio to be below 43%. So, for example (and lets use easy numbers for an example since I’m bad at math) if you were earning $120,000 per year (10k per month) and your refinanced monthly student loan payment (combined with any other debts you have) is $3500, then your debt to income ratio would be 28.5%. In such a scenario, all other factors being equal, you are in good shape to refinance your student loans.
If any or all of the above reasons sound like your situation, then you are probably ready to refinance your student loans. I personally used CommonBond (affiliate link) and have had a really great experience with them. While refinancing student loans is certainly not for everyone, if you have been considering it and the above reasons resonate with you, I promise its not that scary. Take that leap. Make that commitment. It is one that will pay off 😉 #punintended.
Have you refinanced your student loans? Have you been considering it? What’s holding you back? I’d love to hear from you.
Don’t know what the heck to do with your student loans? We personally used the CFA’s at Student Loan Planner to help us put together a solid financial plan for our student loan debt. We personally used them and they literally saved us over $200,000 on our student loans. You can check out the Student Loan Planner here.
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