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The Benefits of Living Debt-Free

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

When it comes to debt, most of us have outstanding balances of one kind or another. Indeed, a whopping 80 percent of Americans are living in the red, according to a 2015 Pew Charitable Trusts report — eight in every 10 U.S. adults.

It goes without saying that debt can majorly impact your financial freedom. At one point, Simone Dennis, a 29-year-old health policy analyst in Baltimore, was shelling out in excess of $1,000 a month in minimum payments alone on a combination of auto, student and medical debt.

“I wrote that number down and looked at it every day,”she told MagnifyMoney. “I wanted to escape a life where I was burdened by debt and unable to change my situation because I needed the income.”

In other words, every financial decision she made revolved around her debt. But then she took charge and set her sights on becoming completely debt-free. At the starting line, she owed $65,000 in student loans, had $14,000 left on her car loan and had to contend with another $1,000 in medical bills.

Earlier this month, she reached her goal, wiping out $80,000 in just three years. (We’ll dive into how she did it in a bit.) These days, she’s excited to kick off a life where her income goes toward funding her long-term goals — not the creditors.

The benefits of living debt-free are often life-changing. If your current debt management style is making minimum payments and calling it a day, you might want to perk up and pay attention. Here are all the reasons why living a debt-free life should be your top priority.

What are the benefits of being debt-free?

More funds for your future goals

Unshackling yourself from debt frees up cash that was previously going toward paying down your balances. That means keeping more of your take-home pay. In some cases, it could mean breaking the cycle of living paycheck to paycheck.

Instead of being beholden to creditors, you can use this money to further other financial goals, like building up your emergency fund, kicking up your retirement contributions or whatever else comes to mind. Dennis is using that $1,000 of newfound cash to increase her 401(k) contributions for the employer match. She’s also planning a Mexican vacation to celebrate her accomplishment.

Marissa Lyda and her husband, Jacob, recently crossed the debt-free finish line after paying off $87,000 in student loan debt over a two-and-a-half-year period. This means they finally have some real saving power;getting out of debt has unlocked $750 a month that went toward minimum payments.

“We want to have a full emergency fund and start saving for a good down payment on a house,”Lyda, a 23-year-old accounting specialist in Portland, Ore., told MagnifyMoney. “We’re also putting more toward our retirement accounts.”

You’ll save money in the long-term

You’ll really feel the impact of getting debt-free if you carry any high-interest balances. Let’s say, for example, you have a $3,000 balance on a credit card with an 18 percent interest rate and a $125 minimum monthly payment. If you pay just that minimum, our handy debt payoff calculator reveals that it’ll take you 30 months to get to zero — and you’ll pay $747 extra in interest. These numbers are compounded even further if you have multiple balances and interest rates, which could cost you big time in the long run. (You’re essentially paying creditors to be mired in debt.)

In addition to the immediate financial freedom you can achieve, living debt-free can also majorly supercharge your retirement efforts. Think about it: If you took $400 you were spending each month on debt and redirected it toward a Roth IRA, it would grow to more than $485,000 over the next 30 years, assuming 7 percent annual returns. This mentality could make your golden years a lot more comfortable.

Your health might improve

Another interesting tidbit is that living debt-free may very well be good for our health. Money is the No. 1 stressor in the United States, according to the American Psychological Association’s 2015 Stress in America survey.

Chronic stress can suppress our immune systems and disrupt everything from our digestion to our sleep to our reproductive systems, says the National Institute of Mental Health. There’s also a link between long-term stress and depression and anxiety. It stands to reason that eliminating your debt worries could actually be good for your health.

Risks of debt-free living: How extreme is too extreme?

Conventional wisdom tells us that living without debt is the healthiest way to manage our finances, but this doesn’t mean swearing off credit all together. Doing so, in fact, can work against your financial fitness, according to certified financial planner and senior CFP Board ambassador Jill Schlesinger.

“If you live an all-cash life, then the moment you actually need a loan, you may be in trouble,”she told MagnifyMoney. “It’s highly unlikely you’re going to be able to buy a large asset, like a car or a house, in cash.”

When the time comes to apply for a car loan or mortgage, getting approved — and getting the best rate possible — is wholly intertwined with your credit score. A number of factors go into determining this number. Fifteen percent of your FICO score, for example, is determined by the length of your credit history. New credit makes up another 10 percent;having a mix of credit counts for another 10 percent. In other words, actively using credit responsibly accounts for 35 percent of your credit score. Going completely credit-free translates to a thin credit file that can impact important financing options down the road.

“I totally understand the anxiety of not wanting to live with debt, but going too extreme can be shortsighted,”said Schlesinger, who suggests one of two pathways for maintaining a robust credit score:

  • Use credit cards responsibly: This means paying off your balances in full every month and never carrying a balance. Your credit utilization ratio (i.e. how much of your available credit you’re actually using) makes up nearly one-third of your FICO score. Our experts recommend keeping your credit utilization ratio under 30 percent.Reaching for a credit card instead of cash or a debit card to pay for regular living expenses, like gas and groceries, is a great way to use credit to your advantage, so long as you’re paying off the balance in full every billing cycle. (If you can rack up rewards in the process, all the better.) Making on-time payments also shows future lenders that you know how to handle your credit.
  • Consider a secured credit card: Don’t trust yourself with a credit card? Thankfully, there are other ways to keep your credit score alive and well. Enter secured credit cards. These require the cardholder to put down a cash deposit, which determines their credit line, right off the bat. From there, you can use it like a regular credit card without the fear of digging yourself into a debt hole. Not carrying a balance and making on-time payments is key to boosting your credit as your activity is reported to the credit bureaus.

Eliminating debt: How to start

Pick a strategy

Making the minimum payment across all your open accounts isn’t the most effective way to pay down your debt. Dennis used what’s known as the snowball method to get debt-free as fast as she did. This means she continued making the minimum payments on all of her accounts, except for the one with the lowest balance, which she hit extra hard with bigger payments.

Once the lowest balance is paid off, you take whatever you were paying on that bill and apply it to the next lowest balance. It has a compounding effect, plus you can see your accounts closing one after the other, which can make you feel like a financial rockstar.

“I made monthly ‘mega-payments’of about $2,700 on the debt with the smallest balance and repeated this method until all my debts were paid in full,”said Dennis. “The quick wins of the debt snowball method motivated me to keep going.”

One side note: While you’ll end up paying more in interest over the long haul, this tactic works wonders when it comes to keeping up motivation, according to The Journal of Consumer Research.

Alternatively, you can tackle your debt by prioritizing the accounts that have the highest interest rates. From a black-and-white, numbers perspective, this is smarter than the snowball method since you’ll ultimately get out of debt sooner and pay less in interest. Not sure which method is right for you? Our Snowball versus. Avalanche Calculator can help you make sense of your options.

You can accelerate your debt payoff journey even more by using balance transfer offers. These let you transfer high-interest balances over to new, lower-interest accounts with super-low promotional rates. These typically come with a 3-4% balance transfer fee, but if you can get an intro 0% card and pay off the balance within the promotional period, you can save big time in the long run.

Discover it® Balance Transfer

APPLY NOW Secured

on Discover Bank’s secure website

Rates & Fees

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Discover it® Balance Transfer

Regular APR
14.24% - 25.24% Variable
Intro Purchase APR
0% for 6 Months
Intro BT APR
0% for 18 Months
Annual fee
$0
Rewards Rate
5% cash back at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com and more up to the quarterly maximum, each time you activate, 1% unlimited cash back on all other purchases - automatically.
Balance Transfer Fee
3%
Credit required
good-credit
Excellent/Good Credit

Learn to budget

The key to accelerating your get-out-of-debt timeline is freeing up extra cash that you can throw at your debt. This, of course, requires sticking to a budget. Begin by listing out all your incoming money (income) for the month and subtracting all your outgoing money (expenses), which should include monthly contributions to your savings account. (Don’t worry, you can pay off debt and save at the same time. More on this shortly.)

What’s left represents how much you have to allocate toward your debt. If you come up with a negative number, it means you’re running in the red and need to make some lifestyle tweaks to avoid going even further into debt, which brings us to our next point.

Live within your means

Are there any ways to decrease your expenses? Dennis downgraded her cable package and cellphone plan, stopped paying for garage parking, and cooked meals at home in order to direct more money toward her debt. On a more extreme note, Lyda and her husband sacrificed their personal space and moved in with her parents to kick their debt repayment into high gear.

“We felt very suffocated by debt,”she said. “We weren’t making much, our rent was a lot, and our debt was enormous.”

In addition to lowering your expenses, think of out-of-the-box ways to increase your income, like picking up a side gig. Dennis tipped the scales by selling gently used household items on Craigslist and eBay. She also took on a part-time gig at a local yoga studio in exchange for a free membership.

How to maintain a debt-free life

Once you cross the debt-free finish line, celebrations are certainly in order, but you have to be intentional about not backsliding. Ask yourself how you got into debt in the first place. The way you answer is personal, but pay attention so you don’t repeat past mistakes.

Redirect debt payments toward savings goals

To keep you moving in the right direction, Schlesinger suggests immediately taking whatever you were putting toward your debt and redirecting it to some sort of savings vehicle, whether that be beefing up your emergency fund or upping your retirement contributions.

“It’s a great way to prevent falling back into those bad habits, and the more you can automate it, the better;out of sight, out of mind,”she said.

Top off your emergency fund

If you have nothing in your savings account, you’ll likely rack up new debt to see you through unexpected pop-up expenses. Set your sights on socking away three to six months’of take-home pay in your emergency fund.

This, along with sticking to a budget, living within your means, and using credit responsibly, plays a major role in breaking the debt cycle once and for all. In some cases, your emergency fund could save you from financial ruin. The good news is that you don’t have to wait until getting debt-free to get your savings off the ground.

Debt versus savings: Which comes first?

According to Schlesinger, there’s a common misconception out there that competing money goals represent an either/or situation. But she says that it’s all about changing your mindset so you can fill more than one bucket at the same time.

“When people ask, ‘What should I do: pay off my debt, establish my emergency fund or contribute to my retirement account?’my answer is always is the same: Yes!”said Schlesinger. “These big goals require some multitasking.”

If you’re actively in debt-payoff mode, press pause and focus your energy on setting the foundation for your emergency fund. Our insiders suggest setting a starting target of $1,000. Once you hit that milestone, go back to focusing on debt until it’s knocked out, at which point you can switch back to building your savings up to the three- to six-month mark.

Retirement savings don’t have to be put on hold, either.

“If you have 22 percent [interest] credit card debt, it’s hard not to make that the priority, but if you have a 401(k) match, you should put in enough to at least get that match;we shouldn’t be leaving free money on the table,”Schlesinger added.

The takeaway? You don’t want to be so laser-focused on paying off debt that you rob your future self of a comfortable retirement.

What you should do when you’re finally debt-free

Now is the time to ratchet up your savings goals. After bolstering your emergency fund, the next rung on the ladder, according to Schlesinger, is dialing up your retirement contributions — which is exactly what both Lyda and Dennis are doing. Schlesinger said the goal should be to max out your accounts.

Once that’s on track, you can start focusing on other savings goals like travel, saving for a down payment on a home, or saving for your children’s college education. Investing should also be a top priority at this point. We’re not talking about individual stock picking. Instead, the sooner you can zero in on low-cost index funds, the better. This will position you to really maximize your investment returns.

The path to getting, and staying, debt-free is rarely a linear one, but staying the course definitely pays off. The key is to strike a balance between using credit responsibly and sticking to a plan that lets you contribute to your other overarching financial goals.

The good news? A debt-free life is totally doable.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Marianne Hayes
Marianne Hayes |

Marianne Hayes is a writer at MagnifyMoney. You can email Marianne here

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Pay Down My Debt

Couponing 101: How to Get Started So You Can Eliminate Debt

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Think couponing is a waste of time? Think again. Taking a moment to clip a coupon or ask for a deal can go a long way toward getting out of debt.

The Federal Reserve’s most recent Survey of Consumer Finances shows that 77% of Americans have some form of debt, with credit card debt being the most common. And, according to financial attorney Leslie H. Tayne, founder of Tayne Law Group P.C., there is no downward trend in sight. With the cost of goods on the rise, and income levels not keeping pace, the Melville, N.Y., lawyer says that people become trapped in the paycheck to paycheck cycle. Their debt severely limits their opportunities — both financially and in life.

Lauren Greutman, Syracuse, N.Y.-based consumer savings expert and founder of That Lady Media, once knew that struggle. With $40,000 in debt and an underwater mortgage, she turned to couponing to slash her grocery bill from $2,000 to $200 per month, allocating those savings to her debt. She coupled her couponing strategies with some side hustles and eliminated that burden in three years.

“By couponing, you can give yourself a $5,000-a-year raise that you can use to pay down debt or put towards your other financial goals,” Greutman said.

Here’s how to get your start.

How to start couponing

Greutman said that it’s important for you to first learn when to use a coupon and when not to. For example, she pointed out, buying a generic good may still be cheaper than buying a name brand good with a coupon. She adds that you should hold on to coupons until the items are on sale to increase your savings. Consumer.gov takes it a step further and advises you to avoid buying things just because you have a coupon. It’s not a good deal if you don’t want or need the item.

Next, Greutman encourages you to learn the couponing policies of your favorite stores. Do they let you double up on coupons? At one point, she was getting $500 worth of groceries for $40 by taking advantage of triple coupon sales that her preferred grocer ran once per month.

Greutman’s go-to strategy to get coupons? She emails her favorite manufacturers directly, who, nine times out of 10, send her free products or a high-value coupon. Tayne concurs and often asks companies what deals they have running. If it’s quick and simple, she “loves the idea of trying to pay less.” Consumer.gov says that coupons can also be found in newspapers, magazines, on manufacturer’s websites, or on websites specifically dedicated to coupons.

Couponing strategies from the pros

Greutman offers the following pro couponing tips:

  • Stack savings by pairing a store coupon with a manufacturer’s coupon to purchase a sale item that has a mail-in rebate.
  • Learn the sales cycles of your favorite brands (competitors will never have their goods on sale at the same time).
  • Meal plan around deals to feed your family for super cheap.

Tayne also likes the planning aspect of couponing. She said that the process helps you stick to a budget because you’re thinking about your purchases before you get to the store. This can prevent overspending and taking on additional debt. The Consumer Financial Protection Bureau (CFPB) encourages you to make frugal shopping a family endeavor and teach your children about the value of using coupons early on.

On her website, Greutman urges you to realize that couponing is a skill that takes time to hone. She encourages you to not give up just because you’re not scoring the mega deals right out of the gate. With patience, couponing, and meal planning, the whole frugal shopping experience can eventually become automatic to you.

A word of caution on couponing

On couponing, Greutman said that “short term sacrifice will give you long term gain.” However, both she and Tayne agree that extreme couponing may not be cost effective due to the time commitment. If the process is quick and simple, it absolutely makes sense to try and pay less, Tayne said. But, she cautioned, “don’t let [couponing] take over your life and impact your ability to earn money, which may be more valuable than couponing.”

Once Greutman mastered couponing, she started her business to help other women get out of debt using the tools that she learned. By doing this, she increased her household’s income, further hastening the process of becoming debt free. The moral? Your best way to get out of debt appears to be a two-pronged approach of saving money (through coupons or other means) and earning more of it.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Laura Gariepy |

Laura Gariepy is a writer at MagnifyMoney. You can email Laura here

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7 Best Options to Refinance Student Loans –Get Your Lowest Rate

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Updated: December 2, 2018

Are you tired of paying a high interest rate on your student loan debt? You may be looking for ways to refinance your student loans at a lower interest rate, but don’t know where to turn. We have created the most complete list of lenders currently willing to refinance student loan debt. We recommend you start here and check rates from the top 7 national lenders offering the best student loan refinance products. All of these lenders (except Discover) also allow you to check your rate without impacting your score (using a soft credit pull), and offer the best rates of 2018:

LenderTransparency ScoreMax TermFixed APRVariable APRMax Loan Amount 
SoFiA+

20


Years

3.90% - 8.02%


Fixed Rate*

2.56% - 7.30%


Variable Rate*

No Max


Undergrad/Grad
Max Loan
Learn more Secured

on SoFi’s secure website

EarnestA+

20


Years

3.89% - 7.89%


Fixed Rate

2.47% - 6.97%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured

on Earnest’s secure website

CommonBondA+

20


Years

3.67% - 7.25%


Fixed Rate

2.70% - 7.44%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured

on CommonBond’s secure website

LendKeyA+

20


Years

5.10% - 8.93%


Fixed Rate

2.68% - 8.96%


Variable Rate

$125k / $175k


Undergrad/Grad
Max Loan
Learn more Secured

on LendKey’s secure website

Laurel Road BankA+

20


Years

3.50% - 7.02%


Fixed Rate

3.23% - 6.65%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured

on Laurel Road Bank’s secure website

Citizens BankA+

20


Years

3.90% - 9.99%


Fixed Rate

3.00% - 9.74%


Variable Rate

$90k / $350k


Undergraduate /
Graduate
Learn more Secured

on Citizens Bank (RI)’s secure website

Discover Student LoansA+

20


Years

5.74% - 8.49%


Fixed Rate

4.99% - 7.99%


Variable Rate

$150k


Undergraduate /
Graduate
Learn more Secured

on Discover Bank’s secure website

You should always shop around for the best rate. Don’t worry about the impact on your credit score of applying to multiple lenders: so long as you complete all of your applications within 14 days, it will only count as one inquiry on your credit score.

We have also created:

But before you refinance, read on to see if you are ready to refinance your student loans.

Can I get approved?

Loan approval rules vary by lender. However, all of the lenders will want:

  • Proof that you can afford your payments. That means you have a job with income that is sufficient to cover your student loans and all of your other expenses.
  • Proof that you are a responsible borrower, with a demonstrated record of on-time payments. For some lenders, that means that they use the traditional FICO, requiring a good score. For other lenders, they may just have some basic rules, like no missed payments, or a certain number of on-time payments required to prove that you are responsible.
LenderMinimum credit scoreEligible degreesEligible loansAnnual income
requirements
Employment
requirement
 
SoFi

Good or Excellent
score needed

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

on SoFi’s secure website

Earnest

660

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

on Earnest’s secure website

CommonBond

660

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

on CommonBond’s secure website

LendKey

680

Undergraduate
& Graduate

Private & Federal

$24K

Yes

Learn more Secured

on LendKey’s secure website

Laurel Road Bank

Not published

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

on Laurel Road Bank’s secure website

Citizens Bank

680

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

$24K

Yes

Learn more Secured

on Citizens Bank (RI)’s secure website

Discover Student Loans

Not published

Undergraduate
& Graduate

Private & Federal

None

Yes

Learn more Secured

on Discover Bank’s secure website

Diving Deeper: The best places to consider a refinance

If you go to other sites they may claim to compare several student loan offers in one step. Just beware that they might only show you deals that pay them a referral fee, so you could miss out on lenders ready to give you better terms. Below is what we believe is the most comprehensive list of current student loan refinancing lenders.

You should take the time to shop around. FICO says there is little to no impact on your credit score for rate shopping as many providers as you’d like in a single shopping period (which can be between 14-30 days, depending upon the version of FICO). So set aside a day and apply to as many as you feel comfortable with to get a sense of who is ready to give you the best terms.

Here are more details on the 7 lenders offering the lowest interest rates:

1. SoFi

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on SoFi’s secure website

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SoFi : Variable rates from 2.56% and Fixed Rates from 3.90% (with AutoPay)*

SoFi was one of the first lenders to start offering student loan refinancing products. More MagnifyMoney readers have chosen SoFi than any other lender. The only requirement is that you graduated from a Title IV school. In order to qualify, you need to have a degree, a good job and good income.

Pros Pros

  • Borrowers can refinance private, federal and Parent PLUS loans together: Through SoFi, borrowers have the ability to combine all of their student loans (private, federal and Parent PLUS) when refinancing. Along with the ability to refinance Parent PLUS loans, parents can also transfer the PLUS loans into their child’s name.
  • Access to career coaches: SoFi offers their borrowers access to their Career Advisory Group who work one-on-one with borrowers to help plan their career paths and futures.
  • Unemployment protection: SoFi offers some help if you lose your job. During the period of unemployment they will pause your payments (for up to 12 months) and work with you to find a new job. However, just remember that any unemployment protection offered by SoFi would be weaker than the income-driven repayment options of federal loans.

Cons Cons

  • No cosigner release: While they offer you the opportunity to refinance with a cosigner, it is important to know that SoFi does not offer borrowers the opportunity to release a cosigner later on down the road.
  • You lose certain protections if you refinance a federal loan: This con is not unique to SoFi (and you will find it with all other private lenders). Federal loans come with certain protections, including robust income-driven payment protection options. You will forfeit those protections if you refinance a federal loan to a private loan.

Bottom line

Bottom line

SoFi is really the original student loan refinance company, and is now certainly the largest. SoFi has consistently offered low interest rates and has received good reviews for service. In addition, SoFi invests heavily in building a “community” – which means you can start to get other benefits once you are a SoFi member.

SoFi has taken a radical new approach when it comes to the online finance industry, not only with student loans but in the personal loan, wealth management and mortgage markets as well. With their career development programs and networking events, SoFi shows that they have a lot to offer, not only in the lending space but in other aspects of their customers lives as well.

2. Earnest

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on Earnest’s secure website

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Earnest : Variable Rates from 2.47% and Fixed Rates from 3.89% (with AutoPay)

Earnest focuses on lending to borrowers who show promise of being financially responsible borrowers. Because of this, they offer merit-based loans versus credit-based ones. 

Pros Pros

  • Flexible repayment options: Earnest offers some of the most flexible options when it comes to repayment. They allow you to choose any term length between 5-20 years. You can choose your own monthly payment, based upon what you can afford (to the penny). Earnest also offers bi-weekly payments and “skip a payment” if you run into difficulty.
  • Ability to switch between variable and fixed rates: With Earnest, you can switch between fixed and variable rates throughout the life of your loan. You can do that one time every six months until the loan is paid off. That means you can take advantage of the low variable interest rates now, and then lock in a higher fixed rate later.
  • Loans serviced in-house: Earnest is one of just a few lenders that provides in-house loan servicing versus using a third-party servicer.

Cons Cons

  • Cannot apply with a cosigner: Unlike many of the other lenders, Earnest does not allow borrowers to apply for student loan refinancing with a cosigner.
  • No option to transfer Parent PLUS loans to Child: If you are a parent that is looking to refinance your Parent PLUS loan into your child’s name, it is important to note that this cannot be done through refinancing with Earnest.
  • You lose certain protections if you refinance a federal loan: When refinancing with any private lender, you will give up certain protections if you refinance a federal loan to a private loan.

Bottom line

Bottom line

Earnest, who was recently acquired by Navient, is making a name for themselves within the student refinancing space. With their flexible repayment options and low rates, they are definitely an option worth exploring.

3. CommonBond

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on CommonBond’s secure website

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CommonBond : Variable Rates from 2.70% and Fixed Rates from 3.67% (with AutoPay)

CommonBond started out lending exclusively to graduate students. They initially targeted doctors with more than $100,000 of debt. Over time, CommonBond has expanded and now offers student loan refinancing options to graduates of almost any university (graduate and undergraduate).

Pros Pros

  • Hybrid loan option: CommonBond offers a unique “Hybrid” rate option in which rates are fixed for five years and then become variable for five years. This option can be a good choice for borrowers who intend to make extra payments and plan on paying off their student loans within the first five years. If you can a better interest rate on the Hybrid loan than the Fixed-rate option, you may end up paying less over the life of the loan.
  • Social promise: CommonBond will fund the education of someone in need in an emerging market for every loan that closes. So not only will you save money, but someone in need will get access to an education.
  • “CommonBridge” unemployment protection program: CommonBond is here to help if you lose your job. Similar to SoFi, they will pause your payments and assist you in finding a new job.

Cons Cons

  • Does not offer refinancing in the following states: Idaho, Louisiana, Mississippi, Nevada, South Dakota and Vermont.
  • You lose certain protections if you refinance a federal loan: When refinancing with any private lender, you will give up certain protections if you refinance a federal loan to a private loan.

Bottom line

Bottom line

CommonBond not only offers low rates but is also making a social impact along the way. Consider checking out everything that CommonBond has to offer in term of student loan refinancing.

4. LendKey

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on LendKey’s secure website

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LendKey : Variable Rates from 2.68% and Fixed Rates from 5.10% (with AutoPay)

LendKey works with community banks and credit unions across the country. Although you apply with LendKey, your loan will be with a community bank. Over the past year, LendKey has become increasingly competitive on pricing, and frequently has a better rate than some of the more famous marketplace lenders.

Pros Pros

  • Opportunity to work with local banks and credit unions: LendKey is a platform of community banks and credit unions, which are known for providing a more personalized customer experience and competitive interest rates.
  • Offers interest-only payment repayment: Many of the lenders on LendKey offer the option to make interest-only payments for the first four years of repayment.

Cons Cons

  • Rates can vary depending on where you live: The rate that is advertised on LendKey is the lowest possible rate among all of its lenders, and some of these lenders are only available to residents of specific areas. So even if you have an excellent credit report, there is still a possibility that you will not receive the lowest rate, depending on geographic location.
  • No Parent PLUS refinancing available: Unlike several of the other student loan refinancing companies, borrowers do not have the ability to refinance Parent PLUS loans with LendKey.
  • You lose certain protections if you refinance a federal loan: As when refinancing federal loans with any private lender, you will give up your federal protections if you refinance your federal loan to a private one.

Bottom line

Bottom line

LendKey is a good option to keep in mind if you are looking for an alternative to big bank lending. If you prefer working with a credit union or community bank, LendKey may be the route to uncovering your best offer.

5. Laurel Road Bank

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Laurel Road Bank : Variable Rates from 3.23% and Fixed Rates from 3.50% (with AutoPay)

Laurel Road Bank offers a highly competitive product when it comes to student loan refinancing.

Pros Pros

  • Forgiveness in the case of death or disability: They may forgive the total student loan amount owed if the borrower dies before paying off their debt. In the case that the borrower suffers a permanent disability that results in a significant reduction to their income,Laurel Road Bank may forgive some, if not all of the amount owed.
  • Offers good perks for Residents and Fellows: Laurel Road Bank allows medical and dental students to pay only $100 per month throughout their residency or fellowship and up to six months after training. It is important for borrowers to keep in mind that the interest that accrues during this time will be added on to the total loan balance.

Cons Cons

  • Higher late fees: While many lenders charge late fees,Laurel Road Bank’s late fee can be slightly steeper than most at 5% or $28 (whichever is less) for a payment that is over 15 days late.
  • You lose certain protections if you refinance a federal loan: While not specific to Laurel Road Bank, it is important to keep in mind that you will give up certain protections when refinancing a federal loan with any private lender.

Bottom line

Bottom line

As a lender,Laurel Road Bank prides itself on offering personalized service while leveraging technology to make the student loan refinancing process a quick and simple one. Consider checking out their low-rate student loan refinancing product, which is offered in all 50 states.

6. Citizens Bank

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Citizens Bank (RI) : Variable Rates from 3.00% and Fixed Rates from 3.90% (with AutoPay)

Citizens Bank offers student loan refinancing for both private and federal loans through its Education Refinance Loan.

Pros Pros

No degree is required to refinance: If you are a borrower who did not graduate, with Citizens Bank, you are still eligible to refinance the loans that you accumulated over the period you did attend. In order to do so, borrowers much no longer be enrolled in school.

Loyalty discount: Citizens Bank offers a 0.25% discount if you already have an account with Citizens.

Cons Cons

Cannot transfer Parent PLUS loans to Child: If you are looking to refinance your Parent PLUS loan into your child’s name, this cannot be done through Citizens Bank.

You lose certain protections if you refinance a federal loan: Any time that you refinance a federal loan to a private loan, you will give up the protections, forgiveness programs and repayment plans that come with the federal loan.

Bottom line

Bottom line

The Education Refinance Loan offered by Citizens Bank is a good one to consider, especially if you are looking to stick with a traditional banking option. Consider looking into the competitive rates that Citizens Bank has to offer.

7. Discover

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Discover Student Loans : Variable Rates from 4.99% and Fixed Rates from 5.74% (with AutoPay)

Discover, with an array of competitive financial products, offers student loan refinancing for both private and federal loans through their private consolidation loan product.

Pros Pros

  • In-house loan servicing: When refinancing with Discover, they service their loans in-house versus using a third-party servicer.
  • Offer a variety of deferment options: Discover offers four different deferment options for borrowers. If you decide to go back to school, you may be eligible for in-school deferment as long as you are enrolled for at least half-time. In addition to in-school deferment, Discover offers deferment to borrowers on active military duty (up to 3 years), in eligible public service careers (up to 3 years) and those in a health professions residency program (up to 5 years).

Cons Cons

  • Performs a hard credit pull: While most lenders do a soft credit check, Discover does perform a hard pull on your credit.
  • No Parent PLUS refinancing available: Discover does not offer borrowers the option of refinancing their Parent PLUS loans.
  • You lose certain protections if you refinance a federal loan: Be careful when deciding to refinance your federal student loans because when doing so, you will lose access federal protections, forgiveness programs and repayment plans.

Bottom line

Bottom line

If you’re looking for a well-established bank to refinance your student loans, Discover may be the way to go. Just keep in mind that if you apply for a student loan refinance with Discover, they will do a hard pull on your credit.

 

Additional Student Loan Refinance Companies

In addition to the Top 7, there are many more lenders offering to refinance student loans. Below is a listing of all providers we have found so far. This list includes credit unions that may have limited membership. We will continue to update this list as we find more lenders:

Traditional Banks

  • First Republic Eagle Gold. The interest rates are great, but this option is not for everyone. Fixed rates range from 1.95% – 4.45% APR. You need to visit a branch and open a checking account (which has a $3,500 minimum balance to avoid fees). Branches are located in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland (Oregon), Boston, Palm Beach (Florida), Greenwich or New York City. Loans must be $60,000 – $300,000. First Republic wants to recruit their future high net worth clients with this product.
  • Wells Fargo: As a traditional lender, Wells Fargo will look at credit score and debt burden. They offer both fixed and variable loans, with variable rates starting at 4.74% and fixed rates starting at 5.24%. You would likely get much lower interest rates from some of the new Silicon Valley lenders or the credit unions.

Credit Unions

  • Alliant Credit Union: Anyone can join this credit union. Interest rates start as low as 3.75% APR. You can borrow up to $100,000 for up to 25 years.
  • Eastman Credit Union: Credit union membership is restricted (see eligibility here). Fixed rates start at 6.50% and go up to 8% APR.
  • Navy Federal Credit Union: This credit union offers limited membership. For men and women who serve (or have served), the credit union can offer excellent rates and specialized underwriting. Variable interest rates start at 4.07% and fixed rates start at 4.70%.
  • Thrivent: Partnered with Thrivent Federal Credit Union, Thrivent Student Loan Resources offers variable rates starting at 4.13% APR and fixed rates starting at 3.99% APR. It is important to note that in order to qualify for refinancing through Thrivent, you must be a member of the Thrivent Federal Credit Union. If not already a member, borrowers can apply for membership during the student refinance application process.
  • UW Credit Union: This credit union has limited membership (you can find out who can join here, but you had better be in Wisconsin). You can borrow from $5,000 to $150,000 and rates start as low as 4.29% (variable) and 3.99% APR (fixed).

Online Lending Institutions

  • Education Loan Finance:This is a student loan refinancing option that is offered through SouthEast Bank. They have competitive rates with variable rates ranging from 2.80% – 6.01% APR and fixed rates ranging from 3.39% – 6.69% APR.
  • EdVest: This company is the non-profit student loan program of the state of New Hampshire which has become available more broadly. Rates are very competitive, ranging from 4.53% – 7.20% (fixed) and 4.58% – 7.25% APR (variable).
  • IHelp : This service will find a community bank. Unfortunately, these community banks don’t have the best interest rates. Fixed rates range from 4.00% to 8.00% APR (for loans up to 15 years). If you want to get a loan from a community bank or credit union, we recommend trying LendKey instead.
  • Purefy: Purefy lenders offer variable rates ranging from 2.82%-8.42% APR and fixed interest rates ranging from 3.75% – 9.66% APR. You can borrow up to $150,000 for up to 15 years. Just answer a few questions on their site, and you can get an indication of the rate.
  • RISLA: Just like New Hampshire, the state of Rhode Island wants to help you save. You can get fixed rates starting as low as 3.49%. And you do not need to have lived or studied in Rhode Island to benefit.

Is it worth it to refinance student loans?

If you are in financial difficulty and can’t afford your monthly payments, a refinance is not the solution. Instead, you should look at options to avoid a default on student loan debt.

This is particularly important if you have Federal loans.

Don’t refinance Federal loans unless you are very comfortable with your ability to repay. Think hard about the chances you won’t be able to make payments for a few months. Once you refinance student loans, you may lose flexible Federal payment options that can help you if you genuinely can’t afford the payments you have today. Check the Federal loan repayment estimator to make sure you see all the Federal options you have right now.

If you can afford your monthly payment, but you have been a sloppy payer, then you will likely need to demonstrate responsibility before applying for a refinance.

But, if you can afford your current monthly payment and have been responsible with those payments, then a refinance could be possible and help you pay the debt off sooner.

Like any form of debt, your goal with a student loan should be to pay as low an interest rate as possible. Other than a mortgage, you will likely never have a debt as large as your student loan.

If you are able to reduce the interest rate by refinancing, then you should consider the transaction. However, make sure you include the following in any decision:

Is there an origination fee?

Many lenders have no fee, which is great news. If there is an origination fee, you need to make sure that it is worth paying. If you plan on paying off your loan very quickly, then you may not want to pay a fee. But, if you are going to be paying your loan for a long time, a fee may be worth paying.

Is the interest rate fixed or variable?

Variable interest rates will almost always be lower than fixed interest rates. But there is a reason: you end up taking all of the interest rate risk. We are currently at all-time low interest rates. So, we know that interest rates will go up, we just don’t know when.

This is a judgment call. Just remember, when rates go up, so do your payments. And, in a higher rate environment, you will not be able to refinance your student loans to a better option (because all rates will be going up).

We typically recommend fixing the rate as much as possible, unless you know that you can pay off your debt during a short time period. If you think it will take you 20 years to pay off your loan, you don’t want to bet on the next 20 years of interest rates. But, if you think you will pay it off in five years, you may want to take the bet. Some providers with variable rates will cap them, which can help temper some of the risk.

You can also compare all of these loan options in one chart with our comparison tool. It lists the rates, loan amounts, and kinds of loans each lender is willing to refinance. You can also email us with any questions at info@magnifymoney.com.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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