If you’re feeling crushed by your student loan debt right now, you’re not alone. I’ve been there. I get that it can feel like a huge burden you’ll never get off your shoulders.
But listen: There’s light at the end of the tunnel! There are plenty of ways to get intense about paying off debt. In addition to getting on a budget, making some extra income with another job or side hustle, selling stuff, cutting back expenses, and working the debt snowball, one option a lot of people use is refinancing.
Let’s talk about what refinancing is, and if it’s a good choice for you.
What is student loan refinancing?
Student loan refinancing is the process of switching to a different lender to get a better interest rate or faster payoff—or both. If you qualify, the new lender basically pays off your current loans and gives you a better deal with better terms, which is different from loan consolidation. Refinancing gives you a new rate on a mix of either federal or private student loans, while consolidation means combining your loans, so you only have one payment (it doesn’t actually save you money).Should you refinance your student loans?
Not all refinancing options are created equal, so you have to be careful about the new terms that you sign up for. You should only refinance your student loans if:- It’s totally free to make the change—That means no application fees or origination charges that would cancel out the money you’d save later. If you have to pay to refinance, it’s better to just put all that money toward paying off your debt.
- You don’t end up with a higher interest rate—The point of a refi is to get a lower interest rate. If you get a lower monthly payment, but a higher interest rate, that defeats the purpose.
- You don’t get a longer repayment period—That just means you’ll spend more time being in debt, when your goal is to be debt-free as fast as possible.
- You don’t need a cosigner—Cosigning for a refinance might seem like it makes things easier in the moment. But mixing finances with relationships usually ends up being a pain for everyone involved.
- You stay motivated to keep paying off debt—When your loan situation gets simpler, it can be tempting to go on autopilot since it feels like some of the weight has been lifted. But that mindset won’t get you out of debt fast.
Anthony ONeal is a financial expert, host of the popular online series “The Table” on his YouTube channel, and a best-selling author. Follow Anthony at AnthonyONeal.com and on Twitter @AnthonyONeal.
