Not sure how to go about the process of consolidating student loans? We have put together the best resource on student loan consolidation, especially when you’re on a shoestring budget.
So, stick around, for this may very well be the most important advice you will get about how to consolidate student loans, private or otherwise.
When one thinks about college graduation, a number of obvious life changing events occur in our minds – potential careers, independence, a new car… as well as new beginnings.
However, although this might be the beginning of a new chapter in life, at the back of your mind you’ll still have a burden to carry – the repayment of your student loans!
As we all know, the repayment of student loans can be off-putting for both students and their parents.
It was found out by the Public Interest Research Group in the US that the average debt among student borrowers is currently in excess of $16,500.
That’s a large amount, considering the state of the economy!
The Associated Press also noted that graduates of public colleges and universities usually emerge owing more than $10,000 for their undergraduate years alone. Those who are in private institutions typically owe $14,000, whilst graduate-level students often owe in excess of $24,000!
What’s more, for those studying medicine or law, you can rest assured they accumulate even more debt.
Sadly, repaying these debts is even becoming more difficult for graduates in the midst of uncertain jobs and the current recession.
However, with interest rates in almost all student loan programs currently at record lows, there’s no reason for graduates not to consider consolidating student loans.
It is often said that, by consolidating student loans, graduates can save thousands in interest charges alone!
Now let us look at the things involved in consolidating student loans.
Consolidating Student Loans – Our Definition
Consolidating student loans is typically defined as the process or the act of combining multiple loans into a single loan in order to decrease the monthly payment amount or elevate the repayment period.
There are a lot of reasons behind consolidating student loans, chief of which is money saving repayment incentives, decreased monthly payments, fixed interest rates, and new or renewed deferments.
The Plus Factors of Consolidating student loans
Consolidating student loans has a lot of advantages, not to mention that, at the end of the day, you only have one bill to pay to one bank, as opposed to paying numerous but smaller amounts to all your creditors.
Other advantages of consolidating your student loans include:
Overall Interest Savings as a result of consolidating student loans
Over time, the student loans you have borrowed are usually assigned with different variable interest rates.
Note that the key word here is variable. While the loan you received may have offered, say, 3.5 percent at first, the rate will actually go up as interest rates increase.
So, if you have two or more of these loans, there is a great possibility that you may owe amounts at different rates, and these rates can rise and fall yearly.
Considering that the interest rates have nowhere else to go but up, it is no doubt a safe bet that the debt you have accumulated will mount faster than it would if you consider consolidating student loans.
By consolidating student loans and remaining on your fixed payment plan, it’s possible that you can lock your interest at today’s current loan rates and save some big bucks over the long haul.
Aside from that, all of those loans that may have come from different lending companies or banks can be a burden to deal with. So, by consolidating student loans, you end up dealing with one single company and one payment rather than several.
Other than that, you have a better chance of receiving added bonuses like interest rate reductions in case you pay your debts on time over a period of months.
These benefits are also highly likely in cases where you have automatic withdrawals of your monthly payment from a checking or savings account.
Consolidating Student Loans and Improved Credit Score
By consolidating student loans, borrowers not only save or reduce their long term debt but can also help change their credit score for the better over time.
It is worth noting that an improved credit score is a very important factor when you enter the “real” world and want a new car, apartment or charge card.
Here are some tips for you that can help you as you enter the job market.
• More Open Accounts, The Lower the Score:
It is a documented fact that students borrow loans from up to eight separate financial institutions to pay for school!
Each of these loans has a different payback amount, payment terms and interest rate.
The more accounts a student has opened, the lower your overall credit score. Therefore, lowering the amount of open credit lines, the better your credit score, but this can only be made possible by consolidating student loans in which the older accounts will be combined into a single account.
• The Lower the Payments, the Higher the Score:
When it comes to evaluating your credit report, always take into consideration your monthly minimum payments to your creditors. So, when you hold a number of loans, every payment is considered as part of your monthly payment obligation.
Those who have considered consolidating student loans have only one payment to make, which is typically lower than the minimum amount of the separate, multiple loans.
• Consolidating student loans – The Debt to Credit Ratio Matters:
As you may know, credit bureaus typically find out if you are in debt. They do this by way of evaluating the amount of your available credit you actually use. So, in case you have a total of $10,000 available on three credit lines and you owe $2,000, your score will then be considered higher than if you have maxed out your on credit lines with a $2,000 limit.
It’s worthy to note that if a person has several loans with the maximum used, it will reflect negatively on your credit report.
Given this fact, consolidating student loans is very important in order to lessen the number of open accounts being used.
