If you’re looking to lighten your load, refinancing may be for you. Here’s how to make sure you’ll really benefit from it.
If you’re shelling out a monthly $100 or less, refinancing may not make a big difference. But if you’re paying even $200 to $400 a month, you could potentially save thousands over the life of your loan by refinancing if you're able to get a good rate.
If you refinanced $40,000 in debt from 6.8 percent to 4.37 percent, for example, you could save nearly $5,800 over a 10-year term. (Current rates vary from 4.45 to 7 percent for federal loans and an average of 7.99 percent for private loans; 4.37 percent is the lowest fixed rate offered by online lenders like SoFi for a 10-year loan.)
And if you're paying $1,000+ a month, you could see immediate relief, plus thousands saved over the life of loan. Say you have $100,000 in debt at a 6.8 percent rate that you’re attacking with a hefty $1,151 monthly payment. Refinancing to 4.37 percent interest rate could lower your monthly payment by about $121 a month and save you nearly $14,500 in interest over a 10-year period.
As you might imagine, a smoking rate like that isn’t available to everyone. You need stellar credit—think a score of 750 or more—to benefit from the most attractive rates. Now’s a good time to check your credit report to see if there are any errors, or figure out other ways to boost your score, like upping your credit-to-debt ratio by paying off debt or requesting a credit limit bump.
Before committing to a loan, make sure you compare rates to find the sweetest deal. A good place to start is by looking at large online lenders like SoFi, Earnest and CommonBond, which all offer low rates for student debt refinancing. Take a few minutes to plug your particulars into each lender’s calculator to see what rates and payment terms you qualify for, and then make the best choice for your situation.