Thursday, December 24, 2009

Should You Apply for Student Loan Consolidation?

Think of consolidating your student loans as reorganizing all your key business contacts and putting them into one Blackberry or one Rolodex. Or think of it as combining your DVD remote, your stereo remote, your VCR remote, and your satellite TV remote all into one easy-to-handle device.

Imagine that? Bundling all your debt into one loan with one bill and one payment—maybe even with a lower interest rate of student loan consolidation. By consolidating, you’re actually lowering your monthly loan payments past the average ten-year student loan limit. The downside is that you’re shelling out more money in interest payments because you will be making loan payments over a greater length of time. That’s a big downside of student loan consolidation.

Should you consolidate your student loans? It depends on what your financial situation is and what your financial goals are.

If your goal is immediate financial liquidity, that is, more money in your pocket for the short term, then student loan consolidation may be a good way to go. But if your goal is to get rid of your student loan debt ASAP and you can manage those regular monthly payments, then it’s not such a great idea, unless you can consolidate your loans with a bargain-basement student loan consolidation rates that’s much lower than the one you have now.

In US, student loan consolidation interest rates are fixed, meaning they can’t and won’t change. The rate you get the day you consolidate your loans is the rate you have the day you pay off your consolidation loan. To make things even sweeter, Congress made sure that the fixed interest rate on student loan consolidation could never exceed 8.25 percent.

So far, It’s look like easy to jump right in and consolidate your student loans without thinking the whole thing through. One loan, one payment, maybe a lower interest rate. What’s not to like, right?

There are, however, reasons not to consolidate your student loans. That’s especially true if you have other, better options available to you. Consider these scenarios:

• I need a lower monthly payment. Most lenders will be happy to discuss different loan repayment options, such as the graduated payment and income-sensitive payment plans.
• I’m having trouble keeping up with my loan payments. You can temporarily stop paying your loans, or at least reduce them, under either a deferment or a forbearance plan.
• I just want all my loans rolled into one. Your lending institution may be willing to purchase all your other student loans and bundle them together under one “roof.” In financial circles, that’s known as loan serialization.

So, student loan consolidation, a good deal or not?

source: Book by Brian O'Connell. "Free Yourself From Student Loan Debt"

1 comment:

  1. I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.



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