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Student Loan Debt Consolidation
So, you've been to collage, got your degree and thousands of dollars of student debt. You've heard about student loan debt consolidation, but is it worth the bother?
In a word, yes. Consolidating your student debt is one of the best things that you can do, provided your bear certain points in mind.
The first major benefit is the opportunity to save money on your loan. If you have several federal student loans, it's possible to save more than 50% through consolidation. Your student consolidation loan will have a fixed interest rate similar or even lower than the loans that are being consolidated. So in addition to saving money, the fixed interest rate will help you to budget.
And that's just the start of the benefits. Student consolidation loans are easy to set up, they'll give you a single monthly loan repayment which is often lower than you were paying, and it gives you the chance to secure the lowest interest rate available at the time. Consolidation may also help you to qualify for repayment deferments.
But there are certain pitfalls that it pays to be aware of.
When you set up your consolidation loan (and therefore fix the interest rate that applies to your debts), make sure that the interest rate that you are offered is lower than the rate that you were paying. This might sound obvious but it's not unknown for people to end up paying a higher rate of interest on their student debts. Remember, if the interest on your loans is fixed at a lower rate it will take less time and less money to repay your debts.
Student loan debt consolidation can help to reduce your monthly loan repayment in one of two ways. As we've already seen, it can fix the interest rate at a lower level. But you also have the option to spread the repayments over a longer period of time (up to 30 years in some cases). Please be aware that although this will reduce your repayments dramatically, it will also mean that you have to pay interest on the money you owe for a longer period. So in the long run you will pay more overall.
So before you consolidate, always compare the total cost of repaying your debts both with and without consolidation. If you need help finding out how much you owe, the interest rates and the loan companies, use the National student loan data system. They have full details on federal loans.
Another major attraction of student consolidation loans is their flexibility. Many different loans, including Federal direct loans and federal stafford loans can be consolidated. They can be taken out before you graduate or during your years of repayment. You also have a choice of repayment plans.
You can pay a level amount each month. When you consolidate, the total debt (money borrowed plus interest at the fixed rate) and the repayment period are used to calculate your monthly payment. So if you pay that amount every month for the length of the loan, your debt will be repaid in full. This flat payment option is the cheapest way to repay your debts.
Alternatively, you can opt for a graduated repayment plan. You start by making small payments which cover just the interest, and the payments slowly increase until you eat into the original debt.
Finally, before you sign on the dotted line, make sure you ask three questions;
1) Is this the best interest rate that's available?
2) Is there a reduction available for making payments on time or online?
3) Does this loan meet your needs?
by Stuart Laing
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