Follow these three strategies to get the best rate when refinancing your student loans.
If you are on the road to paying off student loans, you’re likely looking for any way possible to get out of debt. In many cases, refinancing your student loans might be the answer. If you have good credit or a potential cosigner with good credit, you may be able to refinance your student loans at a lower interest rate, which can save you hundreds or thousands of dollars over time.
Student loans are a popular option to finance a semester abroad. You can see the tower at the Hebrew University of Jerusalem, where I studied, at the top right.
Pay Every Existing Loan on Time
To get the best interest rate possible, you’ll need strong credit history and income. The single biggest factor in your credit is your payment history. Make at least the minimum payment every month before the due date. Automatic payments are a great tool for this. If you don’t use autopay, make sure to use calendar reminders, an alarm on your phone, or whatever works for you to avoid late payments.
Student loans, credit cards, auto loans, lines of credit, and any other borrowing typically show up on your credit report and influence your credit score. Make all payments on time to get the best score possible.
A single late payment can bring your score down and takes as long as seven years to be removed from your credit history. Unless you want to wait for the better part of a decade to turn your credit around, make payments on time every single month.
Credit card rewards are a great way to see the world, such as this trip I took to London and Liverpool in April 2019. But if you carry a balance and pay interest every month, you’re probably spending more on interest than what you get in cash back or travel rewards.
Zero Out Your Credit Card Balances
The second biggest piece of your credit score comes from your current balances. Revolving credit accounts like credit cards and credit lines could hurt your credit if you carry a high balance. Many experts recommend that you never use more than 20% of your open limit at any given time, but the best balance for your credit score (and your finances) is zero.
Find a Quality Cosigner with Great Credit
Cosigning a loan is a commitment for both borrowers. Both you and the cosigner will share equal responsibility for the loan, so it’s likely that your cosigner may be a parent, grandparent, guardian, or spouse. If you decide to find a cosigner, be sure that their credit and income history is stronger than your own, so that you may qualify for lower interest rate.
Your credit score is a way for lenders to know if they can depend on you to pay back loans as agreed. By adding someone with a higher credit score to your loan, the cosigner is also promising to pay back the loans on time, even if you don’t. But if you miss a payment, it will also hurt your cosigner’s credit in addition to your own credit.
When working to attain my pilot’s license, I learned about the preparation needed for every flight and the procedures to fix problems that may arise. The same is true with student loans. A good plan in advance paired with an understanding of how your student loans work should put on you track to pay off your loans for good.
You Are in Charge of Your Student Loans
Whether you are about to graduate or graduated school years ago, you should never lose track of your student loans or any other debt you might have. Like all aspects of your personal finances, you are in charge of every decision you make.
With a strong credit history or a cosigner willing to share the perks of their excellent credit score, student loan refinancing might be a good option. The only way to find out is to fill out the application and see what interest rate you qualify for. If it’s lower than what you’re paying today and you won’t incur any fees along the way, you’re likely to save money refinancing your student loans.