I’m not a father yet, but a few of my colleagues at Student Loan Hero have started families over the last couple of years. And I know how important it is for parents and parents-to-be to get their finances in order.
For one thing, if you’re buried in student loan debt, it can be difficult to provide for your kids in the way you want. Trying to manage student loan payments with family and household expenses is not an easy balancing act.
The good news is refinancing student loan debt is a great way to reduce the cost of your loans so you can give your kids a better start in life. Here are a few reasons why refinancing might be the best move for you.
1. There’s a limit to how much cost-cutting you can do
If you have a budget, you’ve probably noticed that you can only slash your expenses so much. After all, your family still needs to be fed, clothed, and sheltered.
If you have federal student loans, you can apply for an income-driven repayment plan (IDR) to potentially lower your monthly payments. But while this type of repayment plan may lower your costs now, you’ll end up paying more in interest over the life of your loans. Plus, it may take you longer to pay them off.
So what are your options if you don’t qualify for an IDR plan or you have private student loans? That’s where student loan refinancing comes in.
Here’s how refinancing works: You compare lenders to see which one offers the best interest rate and other features for your needs. Once you find a lender, you apply to consolidate one or more of your student loans into one new loan. That way, you’ll have only one payment to deal with each month.
By refinancing your student loans with a private lender, you may qualify for a lower interest rate, a lower monthly payment, or both. Depending on your strategy, you may be able to save a little more money each month and even pay off the loans sooner.
2. You can put more money toward your child’s future
After experiencing the burden of student loans, you may want to start putting away some cash to help your kids pay for college.
But in order to get to a place where you can save for your kids’ future, you need to have a solid financial foundation yourself. This means getting rid of your student loan debt altogether, not just lowering your monthly payments.
Look into prepaying your student loans and increasing your payment size. Keep in mind, however, some private student loan banks penalize you for paying off your debt early. In this case, student loan refinancing can help.
When it comes to federal student loans, it can be difficult changing the repayment period, unless you’re suffering from economic hardship.
So if you want to aggressively pay down your loans, you can find refinancing lenders with shorter repayment periods. Going with a shorter term will likely mean higher monthly payments. The bright side is that you’ll pay off the debt faster, potentially save thousands of dollars in interest, and be able to start investing in your kids’ future sooner.
3. You can accelerate your debt payoff strategy
The alternative to cutting back on expenses is to earn more money. For many people, that means finding a second job or picking up a side hustle.
Although this strategy can help you pay off your debt more quickly, it can also leave you with less time for your family. Consider coupling this approach with refinancing to pay off your student loan debt faster. This will allow you to attain a better work-life balance down the road.
A Final Note
It may be tempting to pay just the minimum on your student loans and try to devote your extra cash to other priorities. However, paying off your student debt faster essentially gives you back that payment every month to use for something more important. It can be savings for college, registration fees for sports, or even a family vacation.
Some of the top student loan refinancing lenders offer terms that can help you pay off your debt sooner. Shop around to find the best rates and terms for your situation, then apply.
As you work through this process, you’ll be one step closer to paying off your student loans and being able to better provide for your family, both in the future and in the present.
Andrew Josuweit is the founder and CEO of Student Loan Hero. Their free tools, calculators, and guides are helping over 150,000+ borrowers manage and eliminate more than $3 billion dollars in student loan debt.