Once you graduate from college and land a job, you are ready to buckle down and start paying off your student loans. Depending on how much you, or your parents, borrowed, it may seem like an impossible mission. Also, having multiple loans to repay each month can be a headache and needlessly complicate your finances. If you have steady employment, you may wonder if it is worthwhile to refinance this debt.
Streamline the Payment Process
It is not unusual to graduate from college with multiple student loans. Making payments on each, every month, can be tedious and time-consuming. Forgetting just one can ding your credit score for years. If this sounds like you, refinancing can help. You can consolidate into one loan, with one monthly payment. An added benefit is that you may find your interest rate is lower and the repayment terms more favorable than with your original debt.
If a parent or other family member consigned for you, you may be anxious to take over full responsibility for this payment. Depending on the personality of the person who cosigned for you, having their name on the loan can create some tension in the relationship. Even if you are on the best of terms, knowing that they are ultimately responsible can make you feel like less of an adult. After landing a job, unless you have derogatory marks on your credit, you can probably qualify to refinance on your own. Doing this allows you to remove any cosigners and take full ownership of the debt. You may be pleasantly surprised that you also qualify for a lower interest rate than you originally had.
Pay Down the Loan Quickly
You may feel like the aggravation of refinancing your student loans is not worth the effort. If you can afford the monthly payment you may just consider it a part of life. There may come a time, however, when you wish you had made more of an effort to pay down this expense. If you are considering buying a home in the future, having a large amount of student debt may put a halt to qualifying for a mortgage. Mortgage lenders are particular about their customers’ debt to income ratio. Even if you can easily afford your monthly payments, if you owe more than the lender is comfortable with, in comparison to your income, you will have trouble finding a mortgage. Refinancing student debt at a lower interest rate and aggressively paying it down allows you to make significant strides on this debt, lowering your debt to income ratio.
Probably the most significant reason why people refinance is to save money. Refinancing at a lower interest rate will provide significant savings. You will have the option of having a higher payment each month with a shorter repayment term or a lower monthly payment over a longer period. You can customize the new loan to the conditions that best meet your needs. While some people are eager to pay off the loan as quickly as possible, others value a lower monthly payment more.