Tuesday, 24 April 2018

Consolidating student loans – What you must know

Posted at  09:21  |  in  Loan

If you have availed few student loans to fund your college education and you are not being able to keep tab on the same, it could not just drain you off all your energy but you could also fall behind on payments as it will be difficult to track your loan repayment schedule. However, there is definitely an answer to this and that is by consolidating the student loans that you have availed.

In this article, let us find out how you can go about consolidating these loans so that your financial habits get positively recorded in your credit report and you earn a good credit score in due course.

 

Important factors to consider before consolidating student loans


In the paragraphs that follow, let us find out the essential aspects that you must take into account prior to taking the plunge. However, remember, the same solution will not apply to all students and you need to customize your solutions depending on your requirement.

  • The amount you owe

The outstanding amount that you owe is not just about the balance. Over the years, the loans have attracted different rates of interest, the type of loans, and the date on which it was disbursed.

Since the rates of interest varied on these loans at different points of time, it is essential that you calculate the final amount. You can get the necessary details from National Student Loan Data System.

The interest rate is usually the average of all loans taken together in case of consolidation of student loans. Aside from this, you are also required to know whether the loan that you availed is through a private lender or federal government.

  • Are savings guaranteed?

An important aspect that you must remember is that consolidating does not always means that you will be able to save. If you are able to keep track of the individual loan accounts, it is best in your interest not to consolidate the loans.

It is undoubtedly an advantage because after consolidation, you have to pay the debt amount to only one creditor and that itself reduces your hassle to a great extent. However, in the long run, you end up paying a lot more. Why is this so? This is because consolidating not just means that you are collating all loans, it also means that you will have to pay more over a longer period of time. However, if you want to explore other avenues of debt repayment, you can go through information on

Alternatively, you could also opt for income-based repayment method. It may be mentioned here that once you opt for consolidation, you can avail repayment plans that are of varied types and the terms can range between 10 years and 30 years. Longer repayment term means lower monthly payments.

Benefits of student loan consolidation


Having said about the important factors that you need to consider prior to consolidating student loans, let us briefly go through the benefits-

  • Automatic debit – The monthly repayment amount will be debited from your bank account, the details of which you are required to provide at the time of setting up this mode of repayment.

  • Flexible amount – There is no minimum and maximum amount that makes you qualify for the consolidation of loans.

  • No defaults – The main advantage is that you stop falling behind on payments since you were not able to keep tab on the repayment schedule of different loan accounts.

Last but not the least, you are at peace and do not have to worry about defaulting on payments that eventually get recorded in your credit report, thereby highlighting you as financially irresponsible.  However, one important drawback of student loan consolidation is that you pay more over a period of time.

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Jimmy Simond is founder of wallstreetsfinancenews.com he share his immense knowledge of finance in this blog. You can follow him on Google+.

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