Understanding the Right Way to Consolidate Your School Loans

By: Court Tuttle

Loan consolidation is when one vendor, who opens a new loan, pays off several different loans. This new loan allows you to pay just one bill instead of several different loans, maybe from several different lenders. There are benefits to consolidating debt, but there can be drawbacks also.

Depending on your own situation, you will need to discover whether consolidating loans or keeping loans separate is the best for you. Indeed it is great to have the benefit of paying one monthly bill and knowing that your debt is through one financial lender and the monthly payment is usually much lower.

They will take all of your loans, re-figure them as a new loan package and then you will be offered different options on how fast you want to pay them back. The flip side of this is that if you have private lenders for your loans, you will not be able to consolidate your loans through federal consolidation.

There are some private consolidation lenders you may want to look into. Keep in mind that they are not held to the same regulations that federal loan consolidation programs are by law. There are many questions you need to ask and to have answered before proceeding with this endeavor.

To consolidate your loans, log on to FinAid for an extensive listing of banks that can provide information, and set up, your consolidated loans. You will need to fill out a little information on yourself and then the financial institution of your choice will handle the rest of the work.

You may only consolidate once, so if rates do go down you will be stuck with your current rate. However, with loan consolidation you generally get a lower fixed rate for your loans than on individual loans. A fixed rate means that they won't increase your rate later on as inflation rises.

Students should only consolidate variable rate loans (for example, Stafford Loans), not fixed-rate loans like Perkins loans. It would be best not to touch loans such as the Perkins Loans. Consolidation lowers monthly payments, it also means more interest will be accrued over the life of the loan, and significantly increase the loans' total cost.

Student loan consolidation programs are not the same among lenders, with varying interest rates, grace periods, penalties for late payments, time for loan repayments, and other incentive and discounts. To best reap the benefits of consolidation, try to make the same monthly payments and pay the loan ahead of time.

Debt Consolidation
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