Many people get to the point where they decide it’s time to refinance and consolidate their student loans. However, this isn’t a decision you should make lightly. If you’re at the point where you think refinancing and consolidating your student is a good step, make sure you consider these next important steps.
Understand the Difference
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Knowing the difference between consolidating and refinancing in the first step in the process. Loan consolidation is when you use one large loan to pay off several smaller loans. With student loan consolidation, you can get a lower interest rate, extend the life of your loan for smaller monthly payments, and simplify things by only having one payment to worry about. When you refinance a student loan, you use a new loan to pay off one or more existing loans. Refinancing can help you lower your monthly payments, get a lower interest rate, and shorten your loan term.
Figure Out If You’re Eligible
One of the most important steps in the consolidation and refinance process is figuring out if you’re eligible. First, private lenders sometimes require a minimum outstanding balance before you can consolidate and refinance. This minimum balance is different for every lender, but it typically ranges between $5,000 and $10,000. You’ll also need a steady income, and you’ll want to check your credit score. Many lenders will want you to have a credit score of 600 or above to qualify for consolidating and refinancing.
Decide What to Do With Your Federal Loans
If you have a combination of private and federal loans, you’ll have to decide if you want to include your federal loans when you consolidate and refinance. Keep in mind that if you make your federal loans private, you could lose certain options, like public service forgiveness and income-based repayment plans. If you think your income and credit score will remain strong as you repay your loans, you might not need these protections. That would let you refinance your federal loans and make one payment.
Find the Best Company to Work With
Another important step in this process is finding the best company to refinance and consolidate your loans. Even though you have many options to choose from, websites like Credible have done the hard work for you by vetting the best student loan consolidation companies available, so you can decide on the right one. You’ll be able to compare finance rates, loan terms, and loan details to find the ideal company for your situation.
Understand the Interest Rates
When you’re refinancing your loan, you might have the option between choosing a fixed interest rate and variable interest rate. Fixed interest rates stay the same over time, so they’re less risky. Variable interest rates often start out low, but they can increase over time. Make sure you know which rate you’re getting. If it’s variable, also check to see if it has a limit on how high the rate can go.
When you follow these steps, you’ll know you’re prepared for everything that comes along with consolidating and refinancing your student loans.
