Paying off the debt makes it seem like a relief in the person is progressing in your life. Our psychology and logic are leading us to do something weird again: to pay the lowest debt, regardless of interest rates. We are all under financial obligation in a period of our lives. The most affluent businessman must also get a loan from the bank, or students take for their education costs. The different point is our ability to cope with this debt. And the truth is that most of us can’t handle it — lenders, cash payments, high-interest loans, etc. The result is an endless, vicious debt cycle. Today we will speak about student debt consolidation loans which result after one of the most preferred ways to get rid of this burden which the students face. As a result of consolidating of the student loans, we confronted new loans as debt consolidation loans.
If you are student loan borrower, who needs financial assistance to cope with education costs, then you will find yourself in the complicated condition which you will be out of control when you pay various monthly payments, interest rates and the duration of loans, as well as making payments. To help students combine their loans into one, there is a service such as consolidating student loans. It allows the borrower to make one monthly payment, which is usually less than payments on several loans. Read on to learn how to consolidate your loans and pay off debts. Let’s start from the beginning!
What is student debt consolidation?
Debt consolidation is the combination of several credit accounts on one to pay off the loan, as a rule, at reduced rates. In consumer lending, this technique is common in developed Western countries, and the intermediary companies are engaged in debt consolidation. At first glance, this method of debt management seems to be beneficial: As ways for debt consolidation loans, you can receive through federal loans, from banks or a private lender. But no matter what organization you decide to do this, it will impact a student’s life. Study in detail the issue of consolidating your loans related to your education before you apply. For this reason, you should follow some steps:
Assess the risk then apply for debt consolidation loans
There are risks of consolidating your credit, and this means that this option is not suitable for everyone. Try to clarify the pros and cons of combining a student loan before making any decision.
- Debt consolidation loans simplify your payments. Three, five or sometimes even seven different credits can be combined into one with a single interest rate.
- Repayment plan on an income basis. This way is a convenient solution if you have a small salary – a monthly payment will be a certain percentage of your monthly income. The debt also increases with salary increases and decreases with its decrease.
- The transition to a fixed interest rate. It means that the interest rate remains unchanged during the loan repayment period.
- Most likely, you will have to pay more during the loan repayment period. Perhaps the monthly payment will decrease, but the number of payments and the overall interest rate will increase.
- You will lose all the privileges of the borrower associated with individual loans. Such benefits include a discount on interest rates, significant discounts or redemption earnings.
- Loan consolidation cannot be undone. After its implementation, there is no “cancel” key – your original credits are invalid. You may have to repay the loan on unfavorable terms.
- Possible high-interest rate. The upper limit of the federal interest rate for consolidated loans is 8.25%. Your interest rate may not be as high, but paying 8.25% for 25 years is quite a lot.
Clarify you have private loans or not
Student loan consolidation does not include private loans. This means that if you have both federal and frequent loans, at best you will be able to combine them into two loans. If you have only federal or only private loans, then you can combine them into one.
Find out which federal loans are subject to consolidation
Most of them, but not all, can be consolidated. As part of the loan consolidation program, you can combine the following into one loan:
- Direct subsidized and unsubsidized loans
- Subsidized and unsubsidized loans of the Federal Program Stafford
- PLUS Direct Credits
- Credits PLUS Federal Family Education Program (FFEL)
- Additional student loans
- Federal Perkins Loans
- Federal programs for students of medical specialties
Compare your current and potential payments and interest rates
Ask your loan advisor (s) for the size of your existing debts. If you do not know who can provide information on your loan, use the online service here. Enter all monthly payments and interest rate payments and find out the term of repayment of your loan.
Find out the size of the monthly payment and payment at a changed interest rate by calling the Credit Consolidation Center at 1-800-557-7392, or on the consolidation calculator.
Compare the results. Is it worth the convenience of making one monthly payment of a potential interest rate increase? Will it be profitable to make payments in a smaller amount over a more extended period? There are no right or wrong answers – it all depends on your situation.
Investigate requirements for participation carefully
To consolidate your student loans, you must meet several needs:
- You must have at least one direct loan or loan under the FFEL program, which is in a grace period or paid off.
- You will need to settle all outstanding loans with a credit counselor before the consolidation of loans and make all payments on them according to the income plan.
- You can not combine already combined loans, except in some cases. In most cases, consolidation is not possible. Ask your advisor if your joint credit is an exception or not.
Fill out an application for debt consolidation loans following the requirements of the company
Try to fill in all the fields so as not to delay the confirmation of your application. Make sure you can provide the following information:
- your real address
- social security number
- names, addresses and phone numbers of two guarantors
- monthly budget information
- information about monthly income and expenses
- estimated loan amount to join
- credit numbers to merge
- names and addresses of loan counselors (this information is listed on the monthly payment document)
- the balance of the outstanding loan/information on the unpaid amount
Make sure that you have met all requirements and attached all the documents. After that, it remains just one thing. Be patient and wait for an answer on receiving debt consolidation loans. Don’t forget to continue to repay previous loans until you receive a message from the company that confirms the full repayment of all previous loans. Of course, the best not to go into debt burden at all. But if it happened, you need to pay it as quickly as possible, and with a minimum percentage. İn this condition you are searching for the ways to eliminate this burden. In these cases, debt consolidation may seem to you as the best option. In this article, we tried to provide with all information related to this topic and read all information carefully before the application process.