A Guide to Consolidating and Refinancing Student Loans

Student loan consolidation and refinancing can help you manage your debts, reducing monthly payments, creating more favorable terms, and ensuring you have more money in your pocket at the end of the month. 

But how do these payoff strategies work, what are the differences between private loans and federal loans, and how much money can consolidation save you?

Private and Federal Student Loan Consolidation

Federal student loan consolidation can combine multiple federal loans into one. Private consolidation can combine both federal loans and private loans into a new private loan. The act of consolidation can improve your debt-to-income ratio, which can help when applying for a mortgage and greatly improve your financial situation.

Which Loans Qualify for Student Loan Consolidation?

You can generally consolidate all student loans, including Federal Perkins loans, Direct loans, and other federal loans, as well as those from private lenders. You cannot consolidate private loans with federal loans, but you can consolidate them with other private loans.

What Should you Think About Before Consolidating Student Loans?

Consolidating isn’t just something to consider if you’re struggling to meet current terms. In fact, private lenders often require a minimum credit score in the high-600s and you’ll also need to have a stable income (or a cosigner) and a history of at least a few punctual payments.

Federal student loans are a little easier to consolidate and available to more borrowers, including those looking to qualify for income-based repayment or student loan forgiveness schemes.

In either case, it can reduce your monthly payments, making your loans more manageable.

How to Consolidate Private Student Loans

Some of the private lenders offering this service include:

  • LendKey
  • Citizens One
  • CommonBond
  • SoFi
  • Earnest

The rate you receive will depend on your credit score and whether you opt for a variable interest rate or a fixed interest rate, but generally, they range from 3% to 8%. Each lender has their own set of terms and requirements, but they’ll often require you to:

  • Be at least 18 years old
  • Have no more than $150,000 in debt
  • Be the main borrower (not the cosigner)
  • Complete a credit check

The lender will run some basic checks to determine your creditworthiness before offering you a consolidation sum that will clear your debts and leave you with a single monthly payment. There are different types of private loan depending on whether you’re applying to consolidate just private loans or both federal loans and private loans.

If you only have federal loans, you should apply for federal student loan consolidation instead.

What Will I Pay?

The main goal of student loan consolidation is to reduce your monthly payment. If you have a strong credit score you can get a reduced interest rate and may even benefit from a reduced repayment term. However, as with most forms of consolidation, it’s all about reducing that monthly payment, improving your debt to income ratio and increasing the money you have leftover every month.

Shop around, consider all loan terms carefully, run some calculations to make sure you can meet the monthly payment, and compare repayment options to find something suitable for you.

Don’t feel like you need to jump at the first offer you receive. A personal loan application can show on your credit report and reduce your credit score by as much as 5 points, but multiple applications with multiple private lenders will be classed as “rate shopping”, providing they all occur within 14 days (some credit scoring systems allow for 30 or 45 days).

How Federal Debt Consolidation Loan Works

Federal student loan consolidation won’t reduce your interest rate, but it does make your repayments easier by rolling multiple payments into one and there is no minimum credit score requirement either.

When you consolidate federal student loans, the government basically clears your existing debt and then replaces it with a Direct Consolidation Loan.

You can consolidate directly through the government, with the loan being handled by the Department of Education. There are companies out there that claim to provide federal student loan consolidation on behalf of the government, but some of these are scams and the others are unnecessary—you can do it all yourself.

You can apply for consolidation once you graduate or leave school and you will be given an extended loan term between 10 and 30 years.

Just visit the StudentLoans.gov website to go through this process and find a repayment plan that suits you.

What is Student Loan Refinancing?

Student loan refinancing is very similar to consolidation and the two are often used interchangeably. In both cases, you apply for a new loan and this is used to pay off the old one(s), but refinancing is only offered by private lenders and can be used to “refinance” a single loan.

The process is the same for both and in most cases, you’ll see “consolidation” being used for federal loans and “refinancing” for private loans.

Student Loan Forgiveness and Other Options

You may qualify to have your federal student loans fully or partially forgiven. This is true whether you have previously been accepted or refused for repayment plans and it can help to lift this significant burden off your shoulders.

  • Public Service Loan Forgiveness (PSLF): Offered to government workers and employees with qualifying non-profit companies. You can have your federal loans forgiven after making 120-payments. This program works best with income-focused repayment plans, otherwise, you may have very little left to forgive (if anything) after that period.
  • Teacher Loan Forgiveness: Teachers can have their federal student loans partially forgiven if they have been employed in low-income schools for at least five years. They can have up to $17,500 forgiven.
  • Student Loan Forgiveness for Nurses: Nurses can qualify for PSLF and this is often the best option for getting federal student loans forgiven or reduced. However, there are a couple of highly competitive options, including the NURSE Corps Loan Repayment Program.

There are also Income-Driven Repayment Plans, which is definitely an option worth considering.

Income-Driven Repayment Plans

An income-focused repayment plan is tied to your earnings, taking between 10% and 20% of your earnings, before being forgiven completely after 20 or 25 years. There are four plans:

  • Pay as you Earn (PAYE): If you have graduate loans and are married with two incomes then you may qualify.
  • Revised Pay as you Earn (REPAYE): Offered to individuals who are single, don’t have graduate loans, and have the potential to become high earners.
  • Income-Based Repayment: If you have federal student loans but don’t qualify for PAYE.
  • Income-Contingent Repayment: If you have Parent Plus loans and are seeking a reduced monthly payment.

These programs can greatly reduce your monthly payment and your obligations, but they are not without their disadvantages. For instance, they will seek to extend the repayment term to over 20 years, which will greatly increase the total interest you pay. If anything is forgiven, you may also pay taxes on the forgiven amount.

You can discuss the right option for you with your loan servicer, looking at the payment term in addition to your current circumstances and projected income as well as your student loan terms.

Conclusion: Help and More Information

Student loan refinancing and consolidation can help whether you’re struggling with federal loans or private loans, and there are multiple options available, as discussed in this guide. If you have credit card debt, personal loan debt, and other obligations weighing you down, you may also benefit from a debt management plan, balance transfer credit card, or a debt settlement program.

You can find information on all these programs on this site, as well as everything else you could ever want to know about federal student loans and private loans.

A Guide to Consolidating and Refinancing Student Loans is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

8 Essential Rules for Surviving Financial Hardship

At some point, most people experience an unexpected crisis that shakes their financial world. It could be losing a job, receiving a huge medical bill, or having a car break down at the worst possible time. But surviving a pandemic is a situation you probably never thought you would face.

No matter what challenge you’re facing, you’re not the first.

Along with the public health toll, the COVID crisis has put millions of people out of work. For those struggling financially, here are eight critical rules to help you manage money wisely, stretch your resources, and bounce back from this unprecedented health and economic disaster.

8 rules for managing a financial hardship

Here are the details about each rule to manage a financial setback during the coronavirus crisis.

Rule #1: Accept your situation and use your resources to seek help

The key to successfully navigating a financial setback is to be realistic. If you’re in denial and don’t face money troubles head-on, you can quickly compound the damage.

Instead of focusing on the problem, getting angry, or letting stress overwhelm you, channel your emotions into finding solutions. Start talking about your challenges with people and professionals you trust, such as a money-savvy family member, financial advisor, legitimate credit counselor, or an attorney.

Instead of focusing on the problem, getting angry, or letting stress overwhelm you, channel your emotions into finding solutions.

The following financial associations have certified volunteers who can offer free help and advice:

  • National Association of Personal Financial Advisors
  • The Financial Planning Association
  • Association for Financial Counseling & Planning Education

Rule #2: Get a bird’s eye view of your finances

To fully understand your situation, create a list of what you own and owe; this is called a net worth statement. Compiling your data in one place helps you evaluate your financial resources, make decisions more efficiently, and have essential information at your fingertips if creditors or advisors ask for it.

First, list your assets: 

  • Cash
  • Investments
  • Retirement accounts
  • Real estate
  • Vehicles 

Then list your liabilities:

  • Mortgage
  • Car loans
  • Student loans
  • Credit card debt

Include the estimated values of your assets, the balances on your debts, and the interest rates you pay for each liability. You could jot down this information on paper, enter it in a computer spreadsheet, or create a report using money management software.

When you subtract your total liabilities from your total assets, you’ve calculated your net worth, which is an indicator of your financial health. It’s not uncommon to have a low or negative net worth when you’re in financial trouble.

RELATED: 10 Things Student Loan Borrowers Should Know About Coronavirus Relief  

Rule #3: Understand your cash flow

An essential part of bouncing back from a financial crisis is keeping an eye on your monthly income and expenses. Create a cash flow statement that lists your expected income and typical expenses, such as rent, utilities, food, prescriptions, transportation, and insurance. Again, you can create this report manually or by using budgeting features in a financial program.

Understanding where your money goes is the only way to prioritize expenses and cut all non-essential spending.

Understanding where your money goes is the only way to prioritize expenses and cut all non-essential spending. Making temporary sacrifices will help you recover as quickly as possible with less long-term damage to your finances.

Rule #4: Shop your essential expenses

As you review your spending, it’s an excellent time to comparison-shop your essential expenses. Evaluate your highest costs first, such as housing, vehicles, and insurance, since they offer the most significant potential savings.

For instance, you may be able to move into a less expensive home, purchase or lease a cheaper vehicle, and shop your auto insurance to find better deals. Ask your utility provider about assistance programs that offer energy-saving improvements at no charge.

Rule #5: Communicate with your creditors

If you haven’t been in contact with your creditors, start a dialog with each one immediately. You’ll come out ahead and get favorable treatment from creditors if you are proactive and honest about your financial troubles. Ask them for solutions, such as deferring payments for several months, setting up a reduced payment plan, or refinancing a loan to reduce your financial burden.

You’ll come out ahead and get favorable treatment from creditors if you are proactive and honest about your financial troubles.

Creditors are likely to ask about details regarding your financial situation, so have your net worth and cash flow statements on hand when you speak to them. Be ready to complete any required assistance applications quickly.

Rule #6: Prioritize your debts carefully

Based on guidance from creditors and finance professionals, prioritize your bills and debts carefully. Your goal should be to conserve as much cash as possible without skipping essential payments. Always pay for necessities first: food, prescription drugs, and auto insurance.

Debts related to child support and legal judgments have severe consequences and should be prioritized

Use your net worth statement to rank your liabilities from highest to lowest priority. For instance, debts related to child support and legal judgments have severe consequences and should be prioritized. Keeping up with an auto loan is a high priority if you rely on your vehicle for transportation. Federal student loans are in automatic forbearance through September 30, and the relief may get extended through 2020.

Your unsecured debts—medical bills, credit cards, and private student loans—are lower priorities. Never pay these debts ahead of rent, a mortgage, or utilities when you have a cash shortage.

Rule #7: Don’t let collectors force you to make bad decisions

Prioritizing your debts means some may be paid late or not at all. If a debt collector contacts you about a low-priority debt, such as a medical bill or credit card, don’t allow them to persuade you to pay it before your highest priority bills.

Collectors may try various aggressive tactics, such as threatening to sue you or ruin your credit. A lawsuit could take years, and a creditor is more likely to negotiate a settlement with you. Remember that a creditor or collector can’t send you to jail for civil debts.

If you are behind on bills, that fact is likely already reflected on your credit reports. By the time a collector contacts you, the damage is already done, and paying the bill won’t improve your credit in the short-term.

Rule #8: Take advantage of local and federal benefits

If your income and savings have entirely dried up, use these resources to learn more about local and federal benefits.

  • FeedingAmerica.org has a map showing local food banks
  • Supplemental Nutrition Assistance Program (SNAP) is the federal food program you may qualify for based on where you live, your income, and family size
  • MakingHomeAffordable.gov can help you find a housing counselor or see if your mortgage is backed by the federal government and qualifies for forbearance
  • Benefits.gov has a questionnaire that helps you discover the benefits you’re eligible for
  • Medicaid.gov is the federal health insurance program you may qualify for based on where you live, your income, and family size
  • Healthcare.gov is the federal health insurance marketplace where you may find plans with substantial subsidies if you earn too much to qualify for Medicaid

Financial challenges can cause you and your family to experience a flood of emotions, including anger, fear, and embarrassment. As difficult as it might be to put a financial crisis into perspective, it’s critical. No matter what challenge you’re facing, you’re not the first. There are millions of people who are dealing with COVID-related financial hardships.

Face the fact that your recovery could take a while. Do everything in your power to manage your budget wisely by getting organized, seeking ways to earn more, and spending less. Don’t be afraid to ask for help from creditors, seek free advice from professionals, and take advantage of every local and federal benefit possible.

Source: quickanddirtytips.com

How Much House Should I Afford?

The internet is a treasure trove when it comes to finding information that can help you buy your first home. Unfortunately, searching for “How much house can I afford?” will mostly lead you to online calculators that use an algorithm to come up with a generic estimate.

To come up with a figure, these calculators ask you for details like your zip code, your gross annual income, your down payment amount, your monthly liabilities, and your credit score. From there, they come up with an estimate of your debt-to-income ratio (DTI), or the amount of bills and liabilities you have in relation to your monthly income. 

The truth is, most lenders prefer your debt-to-income ratio to be at 43 percent or lower, although some lenders may offer you a loan with a DTI slightly above that.

Either way, the figures these calculators throw at you are a simple reflection of what a bank is willing to lend you — not an estimate of what you really can or should spend. 

Let’s dig in a bit more to what factors to consider.

Factors that Should Impact Your Home Purchase Price

One of the main factors to consider when deciding how much to spend on a home is how much you want to pay for your mortgage each month. What kind of payment can you commit to without sacrificing other goals?

A mortgage payment calculator is a good tool to use in this case. With a mortgage calculator, you can see how much your monthly payment might be depending on the amount you borrow, the interest rate you qualify for, and the term of the loan. 

While you decide on a monthly payment you can live with, there are additional details you should consider. The main ones include:

  • Down Payment: If you’re able to put down 20% of your home purchase price, you can avoid private mortgage insurance, or PMI. PMI adds an additional cost to your mortgage each month (usually around 1% of your loan amount), although you can have this charge removed from your loan once you have at least 20% equity.
  • Property Taxes: Find out the annual property taxes for any home you’re considering, then divide that amount by 12 to figure out approximately how much you’ll need to pay toward taxes in your mortgage payment each month. Also remember that your property taxes will likely go up slowly over time, which will increase your monthly housing payment along the way.
  • Homeowners Insurance: Your homeowners insurance premiums will also vary depending on the property and other factors. Make sure to get a homeowners insurance quote so you know approximately how much you’ll pay for coverage each year.
  • Home Warranty: Do you want a home warranty that will repair or replace major components of your property that break down? If so, you’ll want to price out home warranties that can provide coverage for your HVAC system, plumbing, appliances, and more. 
  • Other Monthly Bills: Take other liabilities you have into account, and especially the big ones. Daycare expenses, college tuition, utility bills, car payments, and all other bills you have should be considered and planned for.
  • Financial Goals: Are you trying to save more than usual so you can retire early? Or, are you saving in a 529 plan for future college expenses? If your financial goals are a priority (as they should be), then you’ll want to make sure your new house payment won’t make saving for other goals a challenge.
  • Upgrades and Repairs: Finally, don’t forget to come up with an estimate of how much you might want to spend on repairs or changes to your new home. A property that is new or move-in ready may not require much of anything, but money you plan to spend on a major renovation should be taken into consideration along with the purchase price of your home.

Hidden Expenses to Plan For

The factors you should consider when figuring out how much home to buy are pretty obvious, but what about all the expenses of homeownership you can’t always plan for? The reality is, you will need to do some work on your home at some point, and many of the most popular repairs can cost tens of thousands of dollars on their own. 

These repair and renovation cost estimates from Remodeling Magazine’s 2020 Cost vs. Value study are just a few examples: 

  • Garage door replacement: $3,695
  • Vinyl siding replacement: $14,459
  • Wooden window replacement: $21,495
  • Asphalt roof replacement: $24,700

In addition to major repairs like these, you’ll also have repair bills for your HVAC system, mulch to buy for your flower beds, and ongoing costs for maintenance and upkeep to pay for. You may also decide to remodel your older kitchen one day, or to add an extra bedroom as your family grows. 

As you figure out how much you should spend on a home, remember that you won’t know exactly how much you’ll need for home repairs or upgrades. Most people set aside some money for home maintenance in their emergency fund, but you can also set aside money for home repairs in a separate high-yield savings account. 

How to Calculate How Much House You Should Afford

All of the costs we’ve outlined above probably seem overwhelming, but keep in mind that most major home repairs will be spread out over the years and even decades you own your home. Not only that, but you will hopefully start earning more over the course of your career. As your paycheck grows, you’ll be able to set aside more money for emergencies and potentially even pay your mortgage off faster.

So, how do you calculate how much house you can afford? That’s really up to you, but I would start by tallying up every bill you have to pay each month including car payments, insurance, utilities, student loans, and any other debts you have. From there, add in some savings so you have money to set aside for your investing and savings goals. Also factor in money you set aside for retirement in a workplace account.

At this point, you could consider other factors that might impact how much you want to pay for a home. For example:

  • Do you need to build an emergency fund?
  • Are children on the agenda, and should you play for daycare expenses?
  • Do you like being able to save more money for a rainy day? 
  • Do you want to have one spouse stay at home in the future?
  • How long do you want to pay off your home loan?

Once you’ve considered all other factors, you may decide that you should set aside money for some other goals, like future daycare bills or college savings. Maybe you decide you want to pay double on your student loans so you can pay them off early, or that you want a 15-year-home loan with a larger monthly payment instead of a traditional 30-year loan. 

Either way, experts tend to agree that your mortgage payment should be no more than 25% of your income. For a $7,000 monthly income, that means your payment shouldn’t exceed $1,750. If your income is $5,000 per month, your monthly payment should be no more than $1,250 per month. These are ballpark estimates, and your property taxes and homeowners insurance premiums (or estimates) should also be figured into this amount. 

What to Do If You Already Spent Too Much?

If you already overspent on your home, you’re probably wondering which steps to take next. Maybe your monthly mortgage payment is making it impossible to keep up with other bills, or perhaps the home you bought required a lot more work than you realized. 

Either way, there are some steps to get back on track financially if you bit off more than you can chew. Consider these options:

  • Refinance your mortgage. Today’s incredibly low rates have made it so almost anyone can refinance an existing mortgage and save money these days. If you’re able to qualify for a new mortgage with a lower interest rate, you could lower your monthly payment and save money on interest each month. Compare mortgage refinancing rates here. 
  • Cut your expenses. Look for ways to cut your spending on a daily basis — at least until you figure out what to do in the long run. Figure out areas of your budget where you might be spending more than you realized, such as dining out, getting takeout, or going out on the weekends. If you can cut your monthly spending somewhat, you can find more money to use toward your mortgage payment each month. 
  • Get a roommate. Consider renting out your guest room in order to get some help with your mortgage. If you live in a tourist area, you can also rent out a space using platforms like Airbnb.com or VRBO.com. 
  • Sell your home and move. Finally, consider selling your home and moving if you have enough equity to do so without taking a financial loss. Sometimes the best thing you can do in a financial crisis is cut your losses and move on.

The Bottom Line

How much house you can afford isn’t always the same as how much you should afford. Only you know what your monthly bills and liabilities look like each month, and only you know the goals and dreams you really should be saving for.

When it comes to buying a home, you’re almost always better off if you err on the side of caution and borrow less a bank will lend. Buying a modest home can leave you with a lot more choices in life, but buying a home you can’t really afford can leave you struggling for years to come.

The post How Much House Should I Afford? appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

Money Audit: Should We Hold on to Our Rental Properties?

This week’s Mint audit helps out a couple, Pasquale, 46, and Jillian, 39, who are starting a new life together after each experiencing divorce. Both work in software sales earning roughly the same income. When combined, their earnings average $450,000 a year.

The New Jersey couple shares a new mortgage and a savings account. They recently purchased a home together and pool a fraction of their incomes together into a joint account to pay for shared expenses such as the home loan, property taxes and utilities.

Pasquale and Jillian also arrived at the relationship owning their own properties. Pasquale has held onto his townhome in a nearby town that he bought after his divorce. He rents it out, earning a nice $500 monthly profit. Jillian also has a home in Florida, which she rents out. She more or less breaks even every month.

They would like advice related to managing their rental properties (should they sell them?), possibly buying a vacation home in the $250,000 to $350,000 range and, for Pasquale, saving up to help send his two daughters (ages 13 and 17) to college. They’re also wondering if they’re saving “enough” for retirement.

They had lots of good questions, and after an hour on the phone and a review of their finances, I was able to fit together some of their puzzle pieces.

First, here’s a break down of some their finances:

Retirement Savings

  • Pasquale: Contributes 5% to 401(k) and has about $500,000 in it. He also invests 15% in company’s ESPP (Employee Stock Purchase Plan)
  • Jillian: Contributes 5% to a 401(k) plus employer’s match, totaling 10%. She has about $200,000 saved. She also invests 11% in her company’s ESPP.
  • If they were to both cash out their ESPPs today, they’d have about $250,000 in gains, which are subject to income tax.

Child Support Payments

  • Pasquale: $4,000 per month

Debt (Credit Cards and Student Loans)

  • Pasquale: $18,000 in student loans
  • Jillian: $40,000 in student loans

Real Estate Holdings

  • Each of their individual properties has about $80,000 in equity.

 

Here are my top 3 recommendations:

Max Out the 401(k)s

The couple is doing fairly well with their retirement savings, but I think they are too exposed to their ESPPs. They contribute more to their ESPPs than their 401(k)s, which is very risky, considering an ESPP puts all your money in a single stock. A 401(k) is far more diversified.

They may benefit from reallocating some of those dollars back into their company 401(k). In doing so, I recommend they both aim to max out their 401(k)s, which also means a bigger tax deduction. This year’s maximum contribution is $18,500.

Transfer Some ESPP Earnings to College Savings

Every six months, each receives the chance to cash out some or all of the money in their ESPP. I recommend striking at the next opportunity to reduce their exposure to a market downfall and help pay for future college expenses. Taking 20 or 30 percent off the table and placing the dollars into a safer haven like a CD creates less risk.

For Pasquale, specifically, I’d look into selling some of his shares at the next opportunity and placing it into a plain vanilla savings account to cover at least the first two years of his daughter’s education. His daughter will choose a school soon and expects to receive some grants and scholarships to reduce the cost. At that point Pasquale can better estimate how much to withdraw from the stock plan.

For his youngest daughter, it’s not too late for Pasquale to open a 529-college savings account. That money can later be used for higher education costs without being subject to taxes. Investing $500 a month in a 529 starting today could help to afford at least the first year or two of school, depending on where she lands. Pasquale may even consider using some of the ESPP gains to fund the new 529 for daughter #2, if his eldest doesn’t need it.

Sell Rentals to Purchase a New Second Home

How emotionally tied are they to their individual properties? Pasquale said he could take it or leave it. The $500 cash flow is nice, but he’s open to selling it. Jillian, however, would be sad to part ways with the Florida home. While its rental income is just enough to cover the carrying costs, she likes the idea of keeping it. She’s always wanted to have a house by the water.

But I propose a scenario: What if they sold both rental properties and pooled the equity ($160,000) to afford a new second home that they’d both own? They’re eyeing a cabin near the Poconos in Pennsylvania. The estimated cost for a home that suits them is between $250,000 and $300,000. A 50% down payment on a $300,000 home would mean that their monthly mortgage would be roughly $700 per month, given today’s average interest rate of about 4.50% (or possibly higher for second homes.)

From selling the two properties they achieve their goal of affording a second home. Located in a popular resort area, they can also rent it out from time to time for more than $700 a week. Renting the place for just 8 or 10 weeks out of the year would probably cover the annual mortgage.

From there, any extra cash flow could be used to save more for retirement, travel, college, or whatever they wish.

 

Farnoosh Torabi is America’s leading personal finance authority hooked on helping Americans live their richest, happiest lives. From her early days reporting for Money Magazine to now hosting a primetime series on CNBC and writing monthly for O, The Oprah Magazine, she’s become our favorite go-to money expert and friend.

The post Money Audit: Should We Hold on to Our Rental Properties? appeared first on MintLife Blog.

Source: mint.intuit.com

Does Refinancing Hurt Your Credit?

Before you make any big financial decision, it’s crucial to learn how it may affect your credit score. If you’re looking to refinance, it’s natural to wonder if it might hurt your credit.

Typically, your credit health will not be strongly affected by refinancing, but the answer isn’t always black and white. Whether you’re still considering your options or already made your choice, we’ve outlined what you need to know about refinancing below.

What Is Refinancing?

Refinancing is defined by taking on a new loan to pay off the balance of your existing loan balance. How you approach a refinancing decision depends on whether it’s for a home, car, student loan, or personal loan. Since refinancing is essentially replacing an existing debt obligation with another debt obligation under different terms, it’s not a decision to take lightly.

If you’re worried about how refinancing will affect your credit health, remember that there are multiple factors that play into whether or not it hurts your credit score, but the top three factors are:

1) Having a Solid Credit Score

You won’t be in a strong position to negotiate refinancing terms without decent credit.

2) Earning Sufficient Income

If you can’t prove that you can keep up with loan payments after refinancing, it won’t be possible.

3) Proving Sufficient Equity

You’ll also need to provide assurance that the payments will still be made if your income can’t cover the cost. It’s recommended that you should have at least a 20 percent equity in a property when refinancing a home.

 

criteria-for-being-able-to-refinance-successfully

 

How Does Refinancing Hurt Your Credit?

Refinancing might seem like a good option, but exactly how does refinancing hurt your credit? In short, refinancing may temporarily lower your credit score. As a reminder, the main loan-related factors that affect credit scores are credit inquiries and changes to loan balances and terms.

Credit Inquiries

Whenever you refinance, lenders run a hard credit inquiry to verify your credit score. Hard credit inquiries typically lower your credit scores by a few points. Try to avoid incurring several new inquiries by using smart rate shopping tactics. It also helps to get all your applications in during a 14–45 day window.

Keep in mind that credit inquiries made during a 14–45 day period could count as one inquiry when your scores are calculated, depending on the type of loan and its scoring model. Regardless, your credit won’t be permanently damaged because the impact of a hard inquiry on your credit decreases over time anyway.

Changes to Loan Balances and Terms

How much your credit score is impacted by changes to loan balances and terms depends on whether your refinanced loan is reported to the credit bureaus. Lenders may report it as the same loan with changes or as an entirely new loan with a new open date.

If your loan from refinancing is reported as a new loan, your credit score could be more prominently affected. This is because a new or recent open date usually means that it is a new credit obligation, therefore influencing the score more than if the terms of the existing loan are simply changed.

How Do Common Types of Refinancing Affect Your Credit?

Refinancing could help you pay off your loans quicker, which could actually improve your credit. However, there are multiple factors to keep in mind when refinancing different types of loans.

 

main-types-of-refinancing-that-can-affect-your-credit

 

Refinancing a Mortgage

Refinancing a mortgage has the biggest potential impact on your credit health, and it can definitely affect your FICO score. How can you prevent refinancing from hurting your credit too much? Try concentrating your credit inquiries when you shop mortgage rates to a 14–45 day window — this will help prevent multiple hard inquiries. Also, you can work with your lenders to avoid having them all run your credit, which could risk lowering your credit score.

If you’re unsure about when to refinance your mortgage, do your research to capitalize on the best timing. For example, refinancing your mortgage while rates are low could be a viable option for you — but it depends on your situation. Keep in mind that losing your record of paying an old mortgage on time could be harmful to your credit score. A cash-out refinance could be detrimental, too.

Refinancing an Auto Loan

As you figure out if refinancing your auto loan is worth it, be sure to do your due diligence. When refinancing an auto loan, you’re taking out a second loan to pay off your existing car debt. In some cases, refinancing a car loan could be a wise move that could reduce your interest rate or monthly payments. For example, if you’re dealing with an upside-down auto loan, you might consider refinancing.

However, there are many factors to consider before making an auto loan refinancing decision. If the loan with a lower monthly payment has a longer term agreement, will you be comfortable with that? After all, the longer it takes to pay off your car, the more likely it is to depreciate in value.

Refinancing Student Loans

When it comes to student loan refinancing, a lower interest rate could lead to major savings. Whether you’ve built up your own strong credit history or benefit from a cosigner, refinancing can be rewarding.

Usually, you can refinance both your federal and private student loans. Generally speaking, refinancing your student loans shouldn’t be detrimental in the grand scheme of your financial future. However, be aware that refinancing from a federal loan to a private loan will have an impact on the repayment options available to you. Since federal loans can offer significantly better repayment options than private loans, keep that in mind before making your decision.

Pros Cons
If the cost of borrowing is low, securing a lower interest rate is possible Credit scores can drop due to credit checks from lenders
If your credit score greatly improved, you can refinance to get a better rate Credit history can be negatively affected by closing a previous loan to refinance
Refinancing a loan can help you lower expenses in both the short term and long term Refinancing can involve fees, so be sure to do a cost-benefit analysis

How to Prevent Refinancing from Hurting Your Credit

By planning ahead, you can put yourself in a position to not let refinancing negatively affect your credit and overall financial health.

Try to prepare by reading your credit reports closely, making sure there are no errors that could keep your credit application from being approved at the best possible rate. Stay one step ahead of any errors so you still have time to dispute them. As long as you take preventative measures in the refinancing process to save yourself time and money, you shouldn’t find yourself struggling with the refinancing.

If refinancing makes sense for your situation, you shouldn’t be concerned about it hurting your credit. It might not be the most ideal situation, but it’s extremely common and typically relatively easy for your credit score to bounce back.

If you notice that your new loan from refinancing causes alarming changes when you check your credit score, be sure to reach out to your creditor or consider filing a dispute. As long as you’re prioritizing your overall financial health through smart decision making and budgeting, refinancing shouldn’t adversely hurt your credit in the long run.

 

 

 

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Source: mint.intuit.com

How To Balance Working And Going To College

5 Tips For Working Students In CollegeMore and more are choosing to attend college and work at the same time.

Whether you are working a part-time or a full-time job, it can be tough to balance both. There are many working students in college who are able to manage both, but there are also many who aren’t able to.

If you don’t balance them both correctly, it may lead to stress, lower grades, low-quality work being produced, and more.

No one wants that and I’m sure you don’t either.

Related: 21 Ways You Can Learn How To Save Money In College

This is supposed to be the time of your life where you are growing and changing, not feeling like you are drowning in everything that is going on around you.

There are ways to get around it and manage both successfully at the same time, though.

I took a full course load each and every semester, worked full-time, and took part in extracurricular activities. It was definitely hard and I won’t lie about that. However, sometimes a person doesn’t have a choice and has to do everything at once or maybe you are choosing to multi-task and you are wanting to better manage your time.

Related post: How I Graduated From College In 2.5 Years With 2 Degrees AND Saved $37,500

Whatever your reason may be, below are my tips for working college students. The tips below are what helped save me!

 

Carefully plan your class and work schedule.

My first tip for working college students is to carefully plan your class and work schedule.

Some students just choose whatever classes are offered. However, it is much wiser to carefully craft your school and work schedule so that everything flows together efficiently with minimal time wasted.

You can do this by researching into what classes are offered when and trying to eliminate any gap that may be in-between each class. Having an hour or two break between each class can quickly add up. Also, if you happen to have time off between classes, then using this time to do your homework and/or study can be a great use of time as well.

Related post: How I’m a Work-Life Balancing Master

 

Eliminate any time that may be wasted.

There are many time sucks that you may encounter each day. A minute here and a minute there may add up to a few hours wasted each day.

The time you save could be used towards earning more money at your job, studying, socializing, or whatever else it is that you need or want to do. For working college students, every minute is important.

There are many ways to eliminate any time wasters including:

  • Cut down on your commute time. If you can find a job near your college campus then you can eliminate a lot of traveling time.
  • Prep your meals ahead of time. If you can bulk make your meals instead of individually making each one, you will be able to save a lot of time.
  • Be aware of how much time you spend on social media and TV. The average person wastes many, many hours on social media and watching TV. Cutting back on this may save you hours each day without you even realizing it.

Related post: 75 Ways To Make Extra Money

 

Separate yourself from distractions.

Working college students experience a lot of distractions.

Noise in the background, such as with a TV that is on or a party your roommate may be throwing, can distract you from what you need to be doing. If you are trying to study or do homework then you should try to find a quiet place to get work done.

You may want to close your bedroom door, hide the remote from yourself (trust me, this works!), go to the library, or something else.

Related: 16 Best Online Jobs For College Students

 

Have a to-do list and a set schedule.

Having a to-do list is extremely helpful for working students in college because you will know exactly what has to be done and by when. You will then have your responsibilities sitting there right in your face so that you will have to face reality.

Plus, I know that when I am stressed it can be easy to forget things, so having a to-do list eliminates any valuable minutes I may waste debating about whether I forgot to do something.

 

Working students in college need to be realistic.

While one person may be able to work like crazy and attend college at the same time, not everyone can do that.

If your grades are dropping, then you may want to analyze whether you should drop your hours at work or school. What is more important to you at this time and for your future?

With the tips above for working students in college, you’ll be able to rock both your job and your college classes at the same time. Don’t forget to fit in time for fun as well. Good luck!

Are you one of the many working college students out there? Why or why not?

 

The post How To Balance Working And Going To College appeared first on Making Sense Of Cents.

Source: makingsenseofcents.com