Years ago when I still had hefty private student loans to pay off, I decided to refinance for a lower interest rate. At the time, I was paying about 8 percent in interest. The refinance helped bring the interest rate down to about 4 percent.
I didn’t use Credible to help me find a lender because, at the time, I knew nothing about shopping around for loans! (To be fair, Credible wasn’t around yet.) So, I decided to refinance. I wanted to utilize the refinance to spend less on interest and get out of debt faster.
Trust me when I say I was so ready to get out of student loan debt! My balance was about $10,000. I decided to double the monthly payments. On months when I had the funds I would triple my monthly payment to get rid of the debt in the next year.
Are You Thinking of Refinancing?
If you’ve recently calculated the total amount of student loan debt you have and want to pay if off faster, a refinance might be a smart move.
Refinancing makes sense when you want a lower interest rate and have plans to pay it off quickly. If you have a number of private loans with a higher-than-desired interest rate, refinancing to a lower rate may make sense.
Before you decide to refinance, assess your loan situation and take the following factors into consideration. Write them down so you know exactly where you stand.
- Current loan balance for each loan
- The interest rate for each loan
- How much your current monthly payments are
- How your current lenders are applying payments for the loans (principal or interest?)
- Other high-interest debt you may have (such as credit cards)
If You Have Credit Card Debt
It makes sense to pay off high-interest credit card debt before you tackle your student loans. Credit cards will most likely have a higher interest rate than your student loans, so take care of those first.
Refinancing your student loan may lower your monthly payments and give you a little more wiggle room to pay off your credit cards faster.
Tip: If you find yourself overspending on your credit cards or paying them late, try Debitize. It’s a free app that automatically takes money from your checking account for credit card purchases you make.
What is Credible?
Credible is a completely free site that helps you find the best option to refinance your student loans.
Their website is very easy to use and understand, and they promise to deliver jargon-free explanations and instant results.
Credible is a marketplace, which means they show you rates from different lenders so you can compare. This helps you find the best deal — similar to what you’d do if you were looking to buy a car and needed an auto loan.
Credible is appealing to borrowers because they have low fees, don’t have any origination fees and no application fees.
What Does Credible Offer?
If you’re thinking about refinancing, Credible will show you rates from up to 11 lenders. You can refinance your federal, private, and Parent PLUS loans. They show you competitive rates and according to their website, they save the average borrower more than $18,000.
They also offer student loans and let you compare rates for up to six lenders. Credible has personal loans with rates from up to seven lenders. Personal loans can be used to help pay off your high-interest credit card debt or pay a large expense such as a medical bill.
How to Get Rates from Credible
One of the nice things about using Credible is the simplicity of their site. They even tell you how long it may take for you to get your rates which helps ease any hesitation or confusion about the process.
Estimate time to complete: 2 minutes
First, you need to go to their website and make a prequalified request. This means you’ll answer a few questions so they can get the best rates from their database. This won’t impact your credit score because they’re not doing a hard pull.
However, once you decide to move forward with a particular loan, there will be a hard pull on your credit from the lender.
Estimated time to complete: 5 minutes
You can choose the lender that has the best rate or appeals to you most. You’ll be asked to answer a few more questions from the lender.
Estimated time to receive your finalized offer: 2 business days
The last step involves picking the one that you think is best for you. You have two business days to decide.
What Does it Mean to Refinance?
You have the option to refinance the loan, which means you’re getting a new loan to replace or pay off the old one. When you refinance, the new loan should have better terms and rates than the old one. Long-term loans such as a student loan or house are typical kinds of loans that can be refinanced.
All loans come with an interest rate, which is the fee that you need to include as you pay it back. Whether it’s for a house, car, or in this case, your college education, you have to weigh how much this interest is and how much you’re paying for the life of the loan.
When you refinance your student loan, the new loan will most likely be sent directly by your new lender to the old one. You won’t need to worry about receiving a check and paying off your loan. It will be done for you.
Why Should You Refinance?
People usually refinance because their current loan is too expensive, meaning, the rate is too high. Private loans tend to have higher interest rates, averaging around 9% to 12%.
Scott Perry, who runs CatchersHome.com, had $60,000 in federal student loan debt by the time he completed graduate school in 2012. His rate at the time was hovering around 6.8 percent, which is still lower than the average private loan. Despite this, Perry insists he was ready to be debt free.
He explains, “It was totally worth it to refinance. I saved a ton of money in interest. I did lose some of the benefits that come with federal loans, but I felt it was a good trade-off because I was working in a growing field with a strong job and pretty good pay.”
Refinancing is a useful way to pay off your loans faster, and pay less in interest while you’re doing it. Just because you refinance, your loans won’t disappear any faster. If you’re making an effort to refinance, go one step further and create a repayment plan after you get your new loan.
Figure out how many months it will take you to pay your loan off, and what the monthly payments will look like. If you have other, higher interest debt to pay off, such as a credit card, make sure to pay those off quickly.
Perry beams, “I paid it off aggressively out of a personal desire to get rid of debt. I was able to pay off the entire balance earlier this year!”
Keep in mind that if you have federal loans, the benefits may not transfer to private lenders after you refinance. Federal loan benefits include:
- Special federal repayment programs
- Forgiveness programs
How to Qualify
Just like when you get a loan, you need to first qualify. If your credit isn’t great, you may experience problems getting a loan to refinance. But the good thing is you will be able to get an answer pretty much immediately. You’ll need to fill out a form that takes about two minutes.
In order to refinance your loans, you need to be either the primary borrower (the loan needs to be under your name) or the cosigner.
Another important thing to note is that your prequalified rates may change at any time. That means if you’re happy with the terms from a particular lender, you should move on it quickly.
What to Know About Credible’s Lenders
Credible has a number of lenders they use when giving you loan comparisons for your refinance loan.
You submit your application and if a lender has a loan option available for you it will appear on your Credible dashboard. The time frame depends on your financial situation, but it can happen in a matter of minutes.
Each Credible partner or lender has different criteria for figuring out whether you qualify for a certain rate. This will most likely be determined by your personal information and the soft credit inquiry.
If you have a low credit score or want to boost your chances of getting approved by a lender, Credible recommends that you add a cosigner who has excellent credit.
Find Out How Your Payments are Applied to Your Loans
Whether you decide to refinance or not, it’s a good idea to talk to your current lender and find out how your payments are being applied to the loan. Lenders are required to pay interest that accrues daily, first.
Start with the loans that have the highest interest and find out if the payments are going towards interest or the principal balance. Let the lender know that you’d like the extra payments to be applied to the principal balance.
Get Out of Debt Faster
If you decide to make extra payments to this loan, you may save some money on interest payments and be able to get out debt faster.
If you have multiple loans, start with the one that has the highest interest. The Consumer Financial Protection Bureau, also known as the CFPB, has a template you can use to contact your lender. It basically instructs the lender to apply extra payments to the principal.
Here is a snippet:
“After applying the minimum amount due for each loan, any additional amount should be applied to the loan that is accruing the highest interest rate. If there are multiple loans with the same interest rate, please apply the additional amount to the loan with the lowest outstanding principal balance.”
If You Decide to Refinance: Have a Plan to Pay Off Your Debt ASAP
Talk to your new lender and let them know you’d like to apply extra payments to the principal of the loan.
After you’ve squared that away, create a strategy to pay off your debt.
5 Debt Repayment Strategies
Everyone has a different opinion on what kind of debt repayment strategy works best. Here are steps to help you get rid of your student loan debt.
1. Make more than the minimum payment.
Set up automatic payments each month. Start with whatever you can manage and then work your way up.
2. Consolidate multiple loans (if you decide to refinance).
If you have multiple loans floating around, it can sometimes make sense to consolidate those into one loan when you refinance. That way you only have to deal with one monthly payment, and hopefully, a lower rate.
3. Pay off highest interest rate loans first.
Tackling the loans with the highest interest makes sense so you can spend less on the overall interest you’re paying. Write down all of the loans you have and list them in the order of highest to lowest interest rates.
4. Calculate a payoff date.
Have a plan and set a goal for when you’d like to be debt free. This can help motivate you to get this done and be more mindful of your budget and spending.
5. Earn extra income.
Budgeting and curbing spending are great ways to free up funds to dump into your debt. This, combined with a side gig can help tremendously. We’ve created lots of great content that gives you resources to help you learn how to do this.
Here are some awesome resources you can use:
- QKIDS: Tutor kids online
- Uber or Lyft: Drive around town giving people rides and set your own schedule!
- Airbnb: Rent out an extra room in your home
- Decluttr: Get rid of your used CDs and DVDs — Decluttr will buy them from you
- SmugMug: Sell your photos online
These are some of the top articles that may help you get some ideas and get going:
- 50+ Creative Side Hustles Ideas to Make Extra Money
- 80+ Best Ways to Make Money in 2018
- 50 Surprising Hobbies That Can Make You Extra Money Today
I’ll never forget the day I made my last student loan payment. I felt so free and incredibly happy to finally be done with it! Refinancing helped me get there faster.
Saving money on interest for the life of your loans is a great first step to create a plan to pay off your debt.
If you’re coasting on a comfortable and low monthly loan payment because you have other debt to deal with first, make sure to pay more than the minimum.
Once you pay those off, increase your monthly student loan payments. Make sure the extra payments are being applied to the principal.
What strategies do you use to pay off your debt?