Once you are out of college, you have to start paying off your student loans. If you got your loan from the Department of Education, your first payment it usually six months after you graduated. If you have multiple loans, it can be hard to manage your finances and get started in life. This is where student debt consolidation loans come in. Many students consolidate their loans, if they choose to do so, in that grace period after graduation. So what does consolidating your student debt mean? Should you do it? What are the benefits? What about the drawbacks? How do you do it?
So, first off, what are student debt consolidation loans anyway? To put it quite simply, it is where you combine all your student loans so you only have to make one monthly payment, and it locks in the interest rate. You should know that while both Federal and private loans can be consolidated, they cannot be combined and consolidated, so if you have a mix of public and private student loans, you will always have at least two payments. Sometimes people refer to Federal student loan consolidation as “refinancing,” but this term is incorrect. You usually will not have to pay any fees for private loan consolidation because private companies make their money from the government.
Should you look into student debt consolidation loans? That really depends on you, and the current state of your finances. If money is tight right now, consolidating your loans can give you a little peace of mind. If you are doing alright financially, even with the new student loan payments, consolidation may not be a very good idea. Ultimately, you have to weigh the risks and benefits and decide for yourself.
What are the benefits? Student debt consolidation loans can get you lower monthly payments, which is great if you need a little extra breathing room in your wallet. Sometimes you can also get a lower interest rate, whether because interest rates are lower than they were when you took out the loan, or because you have had time to build up your history and credit scores and so are eligible for a better interest rate. Another benefit is in the consolidation itself. Having just one or two monthly payments can make paying your bills on time a lot easier because there is less chance that you will forget about them and not have enough money to cover the payment.
Of course, there are drawbacks to student debt consolidation loans. To begin with, lower payments means a longer loan and the longer the loan, the more interest you will pay. A longer loan term and paying more interest may not be worth it, especially if your finances are such that you do not absolutely have to have it. If you like the idea of a fixed interest rate, as of July 2006, Federal student loans already have their interest rates locked in. Really, it all depends on your financial priorities. Would you rather pay off the loan sooner, and therefore pay less interest, or pay it off later with more interest, but a lower month to month payment?
If you decide to consolidate your student debts, you can apply online with the Student Loan Consolidator, DebtHelp.com, among others. Just make sure that you think it through before you make any decisions because your choices today will determine your financial future. Student debt consolidation loans can be a great tool, or a really bad move. Do your research and think about where you want your finances to be in ten or twenty years.