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When Is A Good Time To Refinance Your Student Loans?

When Is A Good Time To Refinance Your Student Loans?

Student loan debt. Those three words are more important to people in their 20’s and 30’s today than any prior generation. The cost of education has continued to rise alongside a growing expectation that most individuals seeking decent salaries should go well-beyond a high school diploma.

It’s increasingly common now to hear presidential candidates address student loans, and eventually one president will propose a comprehensive solution, especially as recent undergraduates and post-graduates begin their careers, start families, and, above all, become the primary voting bloc.

Federal Refinancing Isn’t An Option…Yet

One solution that has been proposed is a federal refinancing option. If you are unfamiliar with the term, refinancing essentially means getting a new interest rate and new repayment terms. Unfortunately, that doesn’t exist for federal student loans now, and may not for a while.

There are, however, many for-profit companies that offer refinancing for those with private loans, and for those with federal loans who are willing to go with a private company to get a lower interest rate.

Should I Refinance My Student Loans?

You may be one of those graduates wondering if now is the best time to refinance your student loans. The answer is both short and long: it depends. Refinancing could be a smart move, particularly for students who have private loans with high interest rates. Federal student loans can’t be refinanced with the government and therefore require you to go private.

Nevertheless, although you may successful lower your monthly payments, no private company offers the generous terms the government offered when you took out the loan. Remember, the federal government is a non-profit entity, whereas private lenders are for-profit.

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How To Determine If Refinancing Makes Sense

Figuring out whether refinancing makes sense at first requires a bit of math, but there are many sites out there that can help you see the different ways you can approach repayment.

If you think about your student loan as one large payment (with principal and interest included) instead of many monthly payments, it’s easier to understand why refinancing may be useful for some borrowers.

To put it simply – each month, interest on the loan is calculated and added to the principal. When you make a payment, you pay off the accrued interest plus a small portion of the principal. Sometimes, those with a particularly high interest rate can feel like they are paying and paying and their balance never seems to budge.

When that interest number goes down, the amount you owe is reduced a little as well. At the most basic level, the benefit of a lower interest rate is that, over the life of the loan, the total sum of all your payments will be smaller, thus saving you money.

Factors To Consider Before Refinancing

Once you know what your rate options are, how do you determine if now is the right time to refinance your student loans?

Employment

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First, you should take honest stock of your current employment status and your future earning potential. These are important factors, because refinancing and exchanging a federal loan for a private one can remove some flexibility in your payment schedule. Stability in a current position as well as the likelihood of a promotion with salary increases work in your favor when refinancing because they allow you to plan with confidence.

Terms and Conditions of the New Loan

If you feel like you could be laid off or terminated in the near future, or if you are seeking a career change, it might not be a great time to refinance. One way that a new set of terms could be less forgiving than your previous ones is that you might not have the forbearance or deferment option. Forbearance allows you to temporarily postpone or reduce your student loan payments.

Another factor may be that the lender requires a loan to be paid off in 10 years instead of 20. Even if you get a lower interest rate, the accelerated payments will result in a higher monthly expense.

Your Credit Score

When considering the option of refinancing your student debt, it is important to research your credit score. If you’re in a good credit score range, you will be eligible for the lender’s lowest interest rates and most generous terms. On the other hand, a bad credit score might force you to hold off until your credit is better.

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Fixed vs Variable Rates

Also, take some time to mull over your fixed versus variable rate options. Fixed rates are great if you lock in a low one, meanwhile variable rates are adjustable. Given that we are in a rising interest rate environment, your variable rate is likely to increase significantly over time, so it is best to focus on refinancing for the lowest rate possible.

Read The Fine Print

If you have federal loans, and refinancing them into private loans seems to make sense after the aforementioned considerations, be careful and read the small print. There are a number of programs and perks that came with your federal loans that don’t apply to private loans. These include income-based repayment and loan forgiveness.

For example, if you are employed by a non-profit and you are working toward complete loan forgiveness in 10 years, remember that once you refinance your federal students loans to become private, you will lose that opportunity. In fact, your current employer may even have a program to help pay off your student loans that you aren’t even using yet.

Long-Term Financial Goals

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After you do research and know your options, think about your 5 and 10 year plan, both personally and professionally. If you are in a place in your life where you anticipate some bigger purchases, such as a house, car, or business, you should factor those potential buying decisions into the equation. And don’t forget – it’s always best to start saving for retirement early, even if you have to invest with little money.

Similarly, marriage and children maybe critical elements of your future financial planning. The extra few hundred dollars a month that you might be putting toward student loan repayment might be better spent on a down payment for a home or toward saving for costs associated with a growing family.

Final Word

If refinancing makes financial sense for you, do it sooner rather than later. Each month that you pay your old, higher interest rate is another month that money could have been allocated to something else other than an inflated interest expense. If, after researching your options, you decide that refinancing your student loans might not be a smart move right now, there are still things you can do to make good financial decisions.

If you can afford it, pay more than your monthly payment. The more you can put toward prepayment, the more your principal will be reduced each month and the less you will pay in the long-term.

The choice of if or when to refinance student debt is a personal one. This decision is best made by weighing the pros and cons of all options. You can control some things in life, but not everything, like interest rates. With dedication to smart research and a bit of good timing, you could be on your way to a lower monthly payment that could save you thousands in student loan interest.

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Gary Dekmezian

Entrepreneur

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Last Updated on January 2, 2019

How Personal Finance Software Helps You Get More Out of Your Money

How Personal Finance Software Helps You Get More Out of Your Money

Do you know what mental health experts point to as the biggest cause of stress in the United States today? If you said “money,” then ding, ding, we have a winner!

Three out of four adults today report feeling stressed out about money at least part of the time. People are either worried about not having enough money or whether they’re putting the money they do have to use in the best possible way.

Your money is either in charge of you or you’re in charge of it, there’s no middle ground. Using some type of personal finance software can help alleviate some of that money stress and better allow you to manage your money effectively. Without it, you may just be setting yourself up for constant financial worry. Life is already tough enough and there’s no need to make it more difficult by simply hoping your money issues will all work out in your favor. Hint: they won’t.

This guide will help you to understand how personal finance software can better assist with both accomplishing long term financial goals and managing day-to-day aspects of life.

Whether it’s tracking the savings plan for your child’s college fund or making sure you won’t be in the red with the month’s grocery budget, personal finance software keeps all this information in one convenient place.

What Exactly is Personal Finance Software?

Think of it like the dashboard in your car. You have a speedometer to tell you how fast you’re going, an odometer to tell you how far you’ve traveled, and then other gauges to tell you things like how much gas is in the tank and your engine temperature. Personal finance software is essentially the same thing for your money.

When you install this software on your computer, tablet, or smartphone, it helps to track your money — how much is going in, how much is going out, and its growth. Most personal finance software programs will display your budget, spending, investments, bills, savings accounts, and even retirement plans, levels of debt, and credit score.

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How It Leads to Financial Improvement

It shouldn’t come as a surprise, but people who regularly monitor their finances end up wealthier than those who don’t. When you were a kid, keeping track of all of your money in a porcelain piggy bank was pretty easy. As we get older, though, our money becomes spread out across things like car payments, mortgages, retirement funds, taxes, and other investments and debts. All of these things make keeping track of our money a lot more complicated.

Some types of personal finance software can help make things a little less complicated, setting you up to meet financial goals and taking away some of the stress associated with money.

Even if you already have a Certified Financial Planner (CFP) some type of personal finance software can be of great benefit. Whereas CFPs focus on the big picture of your money, they don’t handle the day-to-day aspects that determine your overall financial health.

It’s also not nearly as complicated as you might think and can take out a lot of the tedium that comes with doing everything on an Excel spreadsheet or with a pad and pencil.

Types of Personal Finance Software

When it comes to personal finance software, it generally fits into two categories: tax preparation and money management.

Tax preparation software such as Turbo Tax and H&R Block’s software can help with everything from filing income taxes to IRS rules and regulations and even estate plans. Plus, there’s the benefit of filing online and getting your refund check a lot faster than if you were to mail off your forms after waiting in line at the post office.

For the purpose of this article, however, will be focusing more on the personal finance software that aids with money management.

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Money management personal finance software will help you to see the health of your cash flow, pay down debt, forecast for expenses and savings, track investments, pay bills, and do a host of other things that 30 years ago would have practically required a team of accountants.

When to Use Personal Finance Software

So far we’ve gone over what exactly personal finance software is and how it can be a benefit to your money. The next logical step in this whole equation is determining when it should be used and how is the best way to go about getting started using it.

Below are four of the most common and practical ways to use personal finance software. If all or any of these apply to you and your money, then downloading some type of personal finance software is going to be a smart move.

1. You Have Multiple Accounts

There’s a good chance that when it comes to your money, it’s in more than one place. Sure, you probably have a checking account, but you may also have a savings account, money market account, and retirement accounts such as an IRA or 401k.

If you’re like the average American, you probably have two to three credit cards as well. Fifty percent of Americans also don’t have loyalty to just one bank and spread their money across multiple banks.

Rather than spending hours typing in every detail of every account you have into a spreadsheet, many programs allow you to easily import your account information. This will help to eliminate any mistakes and give you a bird’s eye view of everything at once.

2. You Want to Automate Some or All of Your Payments

Please don’t say that you’re still writing out paper checks and dropping each bill in the mailbox. While it’s noble that you’re doing your part to keep postal workers employed, we’re 18 years into the 21st century and you can literally pay every bill online now.

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There’s no need to log into every account you have and type in your routing number either.

With personal finance software you can schedule automatic payments and transfers between all of your imported accounts. Automatic transfers will help to make sure you have the necessary funds in the right account to ensure all bills are paid on the appropriate date. Late fees are annoying and do nothing but cost you money. It’s time that you said goodbye to them once and for all.

3. You Need to Streamline Your Budget

Perhaps the best feature of personal finance software is that it allows you track everything going in and out of your virtual wallet.

Nearly every brand of personal finance software out there has easy-to-read graphs and charts that allow you track every cent you spend or earn, should you choose. You might be pretty amazed when you see just how much you spent on eating out last month or if you splurged a little more than you should have on Christmas gifts last year.

Every successful business on the planet has a budget and using personal finance software can help you trim the fat on your spending in ways that affect your everyday life.

4. You Have Specific Goals to Meet

Maybe it’s paying off debt or saving for up something like a European vacation. Whatever your financial goal is, whether it’s long-term or short-term, personal finance software programs are one of the savviest ways to go about reaching those goals.

You can do everything from set spending alerts to notify you when you’re over budget to automating what percentage of your paycheck goes to things like retirement investments. The personal finance software that you choose should show you exactly how close you are to hitting those goals at any given time.

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How to Get Started

From AceMoney to Mint and Quicken, there ’s no shortage of personal finance software apps out there. Many of these programs are free to download and will allow you to pay bills, invest, monitor your net worth and credit profile, and even get a loan with the swipe of a finger.

Other programs may only offer you limited services and will require a one-time fee or subscription to unlock all that they offer. These fees can often vary from as little as two dollars to 50 bucks a month.

It’s best to start off with the free version and then gauge whether you’re able to accomplish everything you’d like or if it’s worth exploring one of the paid options. Often times the subscription programs come with assistance from financial planning and investment experts — so that can be a real benefit.

When deciding which personal finance software program to use, it’s also important to look at how many accounts you wish to monitor. Certain programs limit the number of accounts you can add. Be sure that if you have checking, credit card, and investment accounts to monitor, that you choose a service that can monitor them all.

Finally, when looking around for the right personal finance software that meets your needs, make sure that you’re comfortable with the program’s interface. It shouldn’t be expected that you recognize every single feature instantly, but if the features don’t seem readable and manageable to you, then you’re not as likely to use it and get the full benefits.

Final Thoughts

Personal finance software can go a long way in helping you to take control of your money and meeting your financial goals. It’s important to note, however, that some focus more on budgeting and expense tracking while others prioritize investing portfolios and income taxes. Explore several different programs and read reviews to find the one that’s right for you.

In this day and age, managing one’s personal finances in a secure manner that allows the user to have a real-time visual representation of their money is easier than ever before. With the numerous applications that are out there — both free and subscription-based — there’s no reason that every person can’t take control of their money and ensure they’re making smart money moves.

Featured photo credit: rawpixel via unsplash.com

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