You are out of school, making your place in the world and working to build a nest egg for your future. You know that meeting your loan repayment obligation is very important to your future because a loan default can have long-term negative consequences. One way of achieving your financial goals can be to refinance your school loans, especially if you have several loans or loans at higher than market rates. Before you refinance, take the following five steps to make sure it’s a good idea.

1. Take a Deep Breath

Financial decision-making can be overwhelming, and you’ll want a clear head as you make your decisions.

  • Realize you aren’t alone; it’s estimated that 40 million Americans are dealing with student loan debt.
  • Speak with your friends who are also paying off student loans about their successful strategies .
  • Accept that it will take time to pay off your loan and by doing so you will improve your creditworthiness.

2. Assess Your Current Situation

Knowing where you are starting from is necessary to plan where you want to go.

  • Are you employed by a stable firm, or taking a chance in a risky start-up or business of your own?
  • How confident are you that your financial situation will enable you to meet your monthly expenses, including repayment of your student loans?
  • Are you fully responsible for yourself financially, or do you have financial support such as a parent who can co-sign for a new loan to refinance your current loans?

3. Create a Financial Budget

Knowing the big picture in dollars-and-cents enables you to consider your options.

  • Write down your current income, including your main income from employment and income from any side gigs you may have.
  • Write down your current expenses, including your rent, food and entertainment, and school loans repayment.
  • Note the difference between your income and expenses and consider where you can cut costs and increase income, including the impact of decreasing your school loan repayment by refinancing can have on your financial situation.

4. Compare Different Loan Refinance Options

There are plenty of options for refinancing loans on the market today, each with their own conditions that will affect your ability to refinance and lower your loan payments. Some of these conditions include:

  • The minimum and maximum amount for the refinance option
  • The refinance loan rates based on the term of the loan
  • Any option or requirement for a co-signer on the loan

5. Refinance Federal Loans When It Makes Sense

Before refinancing federal student loans with private loans you need to be careful because you can lose some important repayment benefits. Federal student loans may offer repayment terms that are based on a percentage of your income. Caps are 10 to 20 percent depending upon the repayment plan, and private loans may not offer a payment cap based on your income. Federal loans may also offer loan forgiveness programs such as Teach NYC, so if you convert to a private loan then you will likely forfeit the ability to leverage service for loan repayment.

Only after going through these five steps should you go through with refinancing your loans.