If you’ve recently graduated from a 4-year institution, or will soon, you may be thinking about that debt you’ve been accumulating. With a combination of subsidised and unsubsidised federal loans, plus any private loans you may have accepted, navigating the repayment terms and interest rates can be exceptionally complex. To avoid missing payments or paying a higher interest rate than you need to, you might consider consolidating your debt into a single easy payment at an affordable rate. Read on to learn more about how debt consolidation works and discover if a consolidation loan is right for you. Already know that a consolidation loan is right for your needs?
What is debt consolidation?
Debt consolidation is a financial technique designed to restructure multiple debts into one singular debt. In the case of student loan debt, consolidation would enable you to transform multiple student loans into a single loan with a single interest rate, thereby simplifying the repayment process and, in some cases, decreasing the overall interest rate. You can consolidate both federal student loans and private student loans. However, federal student loans offer multiple repayment advantages to private loans and combining a federal loan with a private loan would first require you to convert any federal loan debt into private loan debt.
Consolidating Federal Loans
To avoid losing the repayment benefits of your federal loans, you might want to consolidate your federal loans into one loan and consolidate any remaining private loans into another. While you will still need to track and manage two separate debts, this process would still enable you to simplify the structure of your debts while simultaneously allowing you to retain the protection and benefits offered by federal loans. To consolidate any federal student loan debt, you can visit the studentloans.gov website to apply for Direct Loan Consolidation. After completing this process, you may want to explore options for consolidating any remaining private student loan debt.
Consolidating Private Loans
One of the primary reasons to consolidate private student loans is to simplify your payment process. However, consolidation of private loan debt may also allow you to lower your overall interest rate or adjust your monthly payment structure. If you entered college directly after high school and took out several private loans to finance your education, you may have agreed to a higher than average interest rate due to your lack of credit. If you have built a good credit history over the last several years, you may want to consider consolidating your private loans into a new loan as your new credit score may give you access to financing options that were not previously available to you. Even if you only have one private loan, you may still be able to consolidate this loan at a lower interest rate, thereby saving yourself a significant amount over the life of the loan. Alternatively, if you are struggling to make the monthly payments on your private loans, a consolidation loan can help you to restructure this debt with a lower monthly payment. This may mean you will extend the life of the loan and increase your overall payments toward interest. However this might be a better alternative than missing payments and damaging your credit score.
Whether you are considering consolidation to simplify your payment process, lower your interest rates, or decrease your monthly payments, a debt consolidation loan can be an excellent tool for restructuring multiple sources of debt. There are a variety of options available from private lenders so be sure to compare repayment terms to ensure you get the lowest interest rate and most flexible repayment terms available.
Ready to find a consolidation loan that’s right for you?