College is generally expensive, which is why a lot of people apply for student loans. This kind of loan has low interest rates, especially if they’re through the government. Student loans allow you to invest in your future and give you peace of mind when you start college.
Student loans are beneficial, but you have to pay them off in time. Not being able to pay for your loan will make you a “delinquent” and result in future applications for credit being denied or having higher interest rates.
Fortunately, there are many ways to make paying your student loans easier, and consolidating them is one way. But student loan consolidation isn’t the best choice for everyone. Keep reading to learn if it’s right for you.
What Is Loan Consolidation?
Loan consolidation is one type of debt refinancing that allows you to combine multiple government-funded student loans into one. This process is often confused with loan refinancing, where you can replace multiple loans from various institutions with one all-encompassing loan.
Consolidating can only be done with federally-funded student loans, and it may affect your eligibility for loan forgiveness programs, so consider this option carefully. If your loans are through banks or other financial institutions, you can consider refinancing to lump them all together into one loan.
Should I Consolidate My Student Loans?
Combining multiple student loans into one loan can help simplify your repayment terms and help you reduce your stress in the long run. On average, student loan debt for graduates with bachelor’s degrees is at $29,000. If you’re planning to repay this within ten years with a loan interest rate of 4.53%, you’ll have to shell out $305 every month. This amount can take a toll on your life, especially if you had several student loans.
You can consolidate your federal student loans by applying for a single federal direct consolidation loan or by refinancing your student loans through a private financing institution.
Consolidating all of your student loans is a smart move as you’ll be able to:
Easily Manage Your Debt
Consolidating your student loans will make it easier for you to manage your debt because you’ll only have to make one loan payment every month instead of making several.
More Time To Pay Off Your Debt
With the number of private companies offering loan consolidating services, you won’t have any problems finding one that allows you to pay your student loans within a longer repayment term. This can be very beneficial to you because the longer your repayment term is, the lower your monthly payment will be.
Have One Fixed Interest Rate
Aside from being stressful, having to pay different loans from different lenders can also cost more money in the long run as lenders often have different interest rates. You won’t have to worry about this problem when you choose to consolidate your student loans, as you’ll only have to think about one interest rate moving forward.
Knowledge Is Power
In short, you’ll have better chances of living a debt-free life if you consolidate your student loans. While you can consolidate federal student loans or refinance both federal and private student loans to make repayment simpler, these options may affect your eligibility for loan forgiveness.
So before taking this direction, make sure to do your research to know the pros and cons of your individual situation. Having a clear picture of how loan consolidation works will allow you to manage your expectations and create solutions to potential problems in the future.