2184: 7 Signs You're Ready To Refinance Your Student Loans by The Finance Twins on Personal Financial Advice

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[00:01:00] This is Optimal Relationships Daily, episode 2184.

[00:01:05] 7 Signs You're Ready to Refinance Your Student Loans by the Finance Twins of thefinancetwins.com.

[00:01:12] Hello everybody. I'm your host Greg Audino and welcome back to another weekly bonus episode of ORD

[00:01:18] where I actually share previously aired audio from another show in our network.

[00:01:23] This way you get to broaden your education a bit and see more of what we have to offer here at OLD.

[00:01:28] So without further ado, here is a post from Optimal Finance Daily brought to you by our host over there, Diana, as we optimize your life.

[00:01:40] 7 Signs You're Ready to Refinance Your Student Loans by the Finance Twins of thefinancetwins.com.

[00:01:47] So many of us are wondering what to do with our student loan debt.

[00:01:51] No doubt you've come across the option of refinancing, but is it for you?

[00:01:55] Here are the 7 signs you're ready to refinance your student loans.

[00:01:59] Number one, do you understand the benefits of refinancing?

[00:02:04] Do you know why you're actually refinancing apart from the fact that your friend's cousin did it?

[00:02:08] Let's break it down. A refinance scoops all your smaller payments into one payment and rewrites the loans you had into one new loan.

[00:02:17] That means you have room to negotiate and shop around.

[00:02:21] Lenders will base your loan on your current credit score, so that's a bonus of lower interest if you've been good with your credit.

[00:02:27] The kind of interest you pay, whether fixed rate or variable, may also change as well.

[00:02:32] You can adjust your payments to fit your lifestyle, whether you want to pay more now to get them over with or create a lower monthly payment so you can get by until you earn more.

[00:02:42] Number two, you have a solid credit score of 650+.

[00:02:47] It might be a waste of time to ask for a student loan refinance if your credit score is under 650.

[00:02:52] Lenders want to see that there's a low risk you'll be unable to pay and will default on your loans.

[00:02:58] Check the website of any company you're considering using to see if they mention a minimum credit score.

[00:03:04] On top of that, having a healthy credit score will also get you the lowest interest rates.

[00:03:08] So it's a win for everyone. Number three, you can show a steady income.

[00:03:14] Lenders like to see a history of steady income so they can see that you have a reliable source of dollars coming in.

[00:03:20] They want to make sure that you'll be able to make the monthly payments on time on a regular basis.

[00:03:25] A steady source of income gives them comfort. If you just got a new job after a gap in employment, you may want to wait at least a year before refinancing.

[00:03:34] If you can't wait to refinance, be ready to explain any gaps or extenuating circumstances.

[00:03:40] Number four, your debts don't outweigh your income. It's important for many reasons to keep your debts lower than your income.

[00:03:47] When it comes to student loan refinance, companies will use their own formula to determine whether they want to take on your loan.

[00:03:54] They keep this secret sauce formula secret.

[00:03:57] But one thing they'll definitely take into account is the balance of your debt versus income.

[00:04:02] If your monthly income is fifteen hundred dollars, but your monthly student loan and mortgage payments add up to over fifteen hundred dollars,

[00:04:09] lenders will be less excited to lend to you because it increases the likelihood you'll be unable to pay them back if your income drops.

[00:04:16] If you aren't sure how to lower your debt, consider making a simple budget to help you finally take control of your money.

[00:04:23] Number five, understand the fees involved. The whole point of refinancing is to save money.

[00:04:30] So understand all the fees that might be working against that goal.

[00:04:33] Be sure to ask about any prepayment penalties, origination fees or application fees.

[00:04:39] But don't let this scare you because it's possible you'll still end up way ahead by lowering your interest rate substantially.

[00:04:46] Number six, you're not looking for an income driven repayment plan.

[00:04:50] If you're interested in an income driven repayment plan, please know that some private lenders do not offer this as an option with student loan refinance.

[00:04:58] That's a different program.

[00:05:00] If you're considering public service loan forgiveness or considering it, then you should not refinance either.

[00:05:06] Private loans do not qualify for PSLF.

[00:05:10] Number seven, you're willing to put in work to find the right lender for you.

[00:05:15] Shopping for a student loan refinance is the same as shopping for any important product.

[00:05:19] It's going to take a little bit of work to get the best deal.

[00:05:22] If your decision affects a cosigner, you owe it to yourself and to that person to understand the responsibilities and details of any refinance deal.

[00:05:30] You'll also want to compare a few others so that you get the best deal possible.

[00:05:39] You just listen to the post titled Seven Signs You're Ready to Refinance Your Student Loans by the finance twins of thefinancetwins.com.

[00:05:47] As someone who doesn't have any student loan debt, I find the topic fascinating.

[00:05:52] I learned from my friend Travis Hornsby over at the student loan planner that there are really only two approaches to student loan debt.

[00:05:59] One, pay them off as quickly as possible.

[00:06:02] This is where refinancing may make sense.

[00:06:04] And two, pay as little as possible and use every trick in the book to maximize the amount of forgiveness you can receive.

[00:06:12] There are income driven repayment plans for federal student loans where your payments are capped at 10 to 15 percent of your discretionary income and then forgiven after 20 to 25 years of payments.

[00:06:24] Note that depending on the program you enroll in, this could come with a big tax bill as your forgiven debt is seen as income.

[00:06:30] So you'll need to prepare for this.

[00:06:32] But even with the tax bomb, this option could make a lot more sense than standard repayment.

[00:06:38] And note that this is different than public service loan forgiveness, which is only an option for certain qualifying careers.

[00:06:44] It doesn't come with the tax bomb and has a shorter time horizon of 10 years of payments.

[00:06:49] The four main income driven repayment plans are income based repayment plan, income contingent repayment plan, pay as you earn and revised pay as you earn.

[00:06:59] There are different eligibility requirements for these plans, and this topic is way more complex than I can cover in this brief commentary.

[00:07:07] But the point I wanted to make is that refinancing is just one option for student loan repayment.

[00:07:13] I'd encourage you to read the article titled The Ultimate Guide to Student Loan Forgiveness Programs in 2021 on the Student Loan Planner blog for more details.

[00:07:23] And that will do it for today. Have a great day and weekend.

[00:07:26] Thank you for listening, and I'll be back here tomorrow where your optimal life awaits.