Student
loan consolidation is something that we have all heard about. This is when
you take more than one loan and refinance them will one single loan so
that all you have to be paying each month is one bill. Loan consolidation
certainly sounds good to those who have to deal with many loans each and
every month but is it really the way you should go?
There are some definite pluses to
federal loan consolidation such as only having to pay one bill each month
of course and the fact that you can get a fixed interest rate on the new
loan. This way you will not have to worry about interest rates going
through the roof. If you get a consolidation loan when the interest rates
are down you could find yourself saving thousands of dollars. With
consolidation you can even extend the amount of time that you have to pay
the loan off. All of these things add up to lower payments each month and
more time to take care of things.
Federal consolidation loans are
pretty much the same no matter where you go for yours. You will always be
able to prepay without any penalties and there are never any applications
fees to pay. There is even a cap on the amount of interest that lenders
are allowed to charge you over the life of the loan.
Private consolidation loans on the
other hand are a whole other animal indeed. With these loans you could
have to pay application or origination fees and your interest rates might
not be fixed, they may be variable which can cost you way more in terms of
the amount of interest you have to pay over the life of the loan.
Keep in mind that no matter how good
debt consolidation loans may sound they are not the right choice for all
borrowers. There are some things that you need to know before you decide
to consolidate your student loans.
The first thing that you need to ask
yourself is should you consolidate your student loans or not. Are you
having trouble making ends meet right now? If you are and you do not see
any way out in the near future then consolidation might be a good option.
You will be able to lower your monthly payments. Of course whether this is
actually possible and whether or not you can extend your repayment time is
all dependent upon just how much money you owe in the first place. No
matter what though, you will be able to lower your interest rate and in
the case of federal debt consolidation you will be able to get a fixed
interest rate, which can save you a lot of money. Keep in mind that the
more you can save each month the more you can put down to get the balance
of your loan lowered.
You also need to know when consolidation is not such
a hot idea. For instance this is not a good idea if you have already paid
of the majority of your student loans. If you have been paying your
payments on time for the last few years you have probably gotten some
benefits and by consolidating you could lose them. And most
importantly consolidating your loans can change the course of things
making it impossible for you to get some of your loans forgiven down the
road. Perkins loans for instance can
sometimes be
reduced or forgiven but not if you have consolidated. If you can hang in
there just a little longer you could find yourself better off for
it.
If you do decide that you want to
look into consolidating your student loans further then you need to know
where to look. There are many places to get a consolidation loan. The
Department of education can give you one or any private lender with
government approval. Check into each consolidation offer thoroughly though
because some are definitely better than others. With some loans you can
get your interest rate lowered after you prove you are good at making your
payments each month and some have better repayment plans for you to choose
from. Do your homework to make sure that you get the best deal possible on
your consolidation loan just like you would any other loan. You will not
be able to consolidate your public loans and your private loans into one
single loan but you can consolidate all of your public loans into one and
then all of your private loans into another.
You also need to know the best time
to consolidate and that is after you have graduated from college but
before your grace period has come to an end. This way you will get the
lower in school rate and the lower your rate the better. Don?t
forget that there will be paperwork to fill out and then this will all
have to get processed and that can take some time so make sure that you
have your timing down pat and that everything can be handled before your
repayment is supposed to start. But if you are past this time and you have
already started paying off your student loans you can still consolidate
them if you want to.
Getting the best interest rate possible
is one of the most important things to do when applying for any loan. The
formula for finding the interest rate on your new consolidation loan is to
find the average of the rates you have now and then round them to the
nearest 1/8 of a percent. The rates will then be capped at 8.25 percent.
Your rate will be adjusted each year.
Consolidation cannot be done again
and again, you can only use this service one time so try to make sure that
the interest rate is not sky high at the time you do consolidate, if you
can of course. There is a chance that you will be able to consolidate
again but only if you go back to school and then have a new loan to be
added in and even then this may not be possible.
Many people ask about consolidating
their loans with that of their husband or wide. This can be done but is it
really something that you should do? If you end up getting divorced you
could find yourself in a pickle because when you consolidate together you
are both responsible for the loan. So if he or she stops paying you will
have to take care of the whole thing yourself or your credit will go down
the tubes. It is risky and it is always better to keep loans
separate.
And if you have any loans that are
subsidized you will not find yourself losing any of thee
benefits.
If you are thinking about getting a
consolidation loan you can apply for one online or even sometimes by phone
and of course there are paper forms that can be filled out as well. Just
contact a lending institution and ask about debt consolidation. You will
have to know all of the information about your loan and yourself in order
to get your loans consolidated. You will even have to give information
such as who you work for and what school you go to, or went to and even
perhaps a few references. Then all you have to do is send in the
applications and wait to see what happens. Just make sure that all
of the data you put down is correct because if it is not this will hold
the whole process up. Once you have been approved for the loan the lender
will get in contact with you and send you all of the info about how to
repay the new consolidated loan.
Loan serialization is not the same
thing as loan consolidation and this is something that many people get
confused about. If you get involved with serialization you will have one
lender purchase all of your loans, this lender will then ?stack? the loans
and have you pay off the loan with the highest interest rate first. You
will then start paying off only one of these student loans at a time,
instead of all at once. Not all loans can be serialized and the interest
rates will not be fixed interest rates.
Don?t let yourself slide
into default on your student loan payments
Paying your student loans on time each month can be
extremely hard, especially when you are just starting out. There
always seems to be something that is there to get in the way no
matter how hard you try to do the right thing. The problem is that you
absolutely have to make these payments on time even missing one time is
deadly. One late payment or missed payment is a delinquent one and you
will be charged late fees which can add up real quick, and you will start
to see a definite negative affect on your credit rating.
If you miss months of payments then
you are looking at default. This is a serious problem that you need to
avoid at all costs. If you fall into default your loan will be handed over
to a collection agency and then it all goes downhill from there. In these
cases you could even be facing garnishment of your wages at work, you
think you had problems before, you have not seen anything yet. You won?t
even be ale to get your income tax refund if you have one coming and if
you were thinking about gong back to school forget getting another student
loan. And if you wanted to finance a car or a house, not a chance
now.
If you are already in trouble and
you have defaulted on your loans then you need to do whatever it takes to
dig yourself out of this mess. Get a hold of your lender and see if they
are willing to work with you to get things going according to plan again.
If you still can?t seem to get things together then find out about some
other options.
Options such as deferment. Deferment
is something that you can get if you are going back to school or f you are
on maternity leave from work, if you are working as a volunteer or even if
you just cannot seen to get yourself a darn job. With this method you will
be able to get out pf making payment for a while until you get back on
your feet. This is not indefinite but it can go on for a few years, in the
end however you will still have to pay the money that you borrowed back to
the lender. Keep in mid as well that interest does not stop building up on
your loans unless they are subsidized.
If you want to learn more about deferment then you
need to see the Federal Student Aid site. Here you will be able to
download forms and find out the answers to most if not all of
your questions. Your lenders will be able to help you with your questions
as well so get in touch with them too. Before you get a deferment you will
have to qualify and then you need to get approved for one. In the meantime
you still will have to be making your payments on time each month. If you
are in default then you won?t be able to get a deferment.
Another possible option for you to
consider is forbearance. This is similar to deferment is some ways and
different in others. For examples you will have to pay the interest on
your loans during this time even if they are subsidized and the length of
time that forbearance lasts in no where near as long as deferment. For
example, forbearance will only be good for less than a year at a time. You
can reapply after that for three years in total. You will have to apply
for this method as well and wait to be approved while still making your
payments each month.
