Improve Your Finances Now to Refinance Your Student Loans

Student loan refinancing rates are near their all-time low, but you might be waiting to take the plunge.

It makes sense to stick with current student loan relief options that suspend your federal student loan payments. It’s free money, more or less, and can help get your finances in shape.

But if that benefit ends as planned on September 30 – or you have higher-rate private student loans without relief programs – you might want to revisit student loan refinancing.

Refinancing rewards good credit and healthy personal finances. Here’s how to make sure the best deal is waiting for you.

Improve your credit

There are many factors that refinance lenders consider in determining your interest rate. You may not be able to immediately move the needle on some of them like your income.

But you can improve others.

For example, a better credit rating usually means a better rate. Refinance lenders can approve you with a FICO FICO,
+ 0.12%
score above 650, but the offers will likely be better for scores in the mid-700s and above.

Look for opportunities to improve your credit score. One of the primary factors in FICO and VantageScore credit scores is usage – the percentage of available credit you are using. If you use more than 30% of your credit, whether it’s on a single card or all of your revolving accounts, strategically paying off balances could improve your scores.

See: Follow this simple plan to manage your credit score

You can also make bi-weekly payments to keep balances low or request higher credit limits.

A history of paying bills on time is key to a good credit score, but reducing credit usage is one of the levers available to build credit quickly.

Pay off the debt

You can have extra money through suspended student loan payments. Unless you need it for an emergency fund, consider using that money to pay off one or more debts.

When deciding on your offer, refinance lenders usually take your debt to income ratio, or DTI. The DTI is your monthly financial obligations divided by your monthly income.

For example, let’s say you earned $ 4000 per month and paid $ 2000 for rent, your existing student loans, etc. Your DTI would be 50%, which is about as high as any refi lender would want.

Of course, a lower DTI is better and could increase the number of deals available to you. So, use a debt tracker and look for monthly payments that you can reduce or eliminate altogether.

To verify: Judge orders Betsy DeVos to cancel 7,200 student loans from scammed borrowers

Can you pay off credit cards or consolidate them into a lower payment? (Don’t close accounts, which could hurt your credit rating.) Or could you first refinance other debt with higher interest rates, like car loans?

Look at the prices

Yes current refi interest rates evolve higher than you would like – and you’re sure you eventually want to redo – apply ASAP.

Consider this: A $ 30,000 loan at 6% typically earns $ 144 interest each month. This interest does not accumulate now, but it is not forgiven. Once the suspension of payment is over, the interest will start again.

Don’t miss: “You have a degree, but who do you know?” Why student debt is a racial justice issue

If you refinanced at 4% per month before the forbearance ended, you would earn in just under five months saving about $ 30 on each monthly bill.

If you have private loans, check your rates now. Private loans don’t have federal perks – like the current interest relief – so there’s little downside to refinancing if you can get a better rate.

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