What You Need to Know About Student Loan Consolidation


Many college graduates come into the work force with tens of thousands of dollars in student loans, often to multiple vendors at different interest rates. If you’re in this boat, and have multiple student loans, and are having trouble paying them off, consider student loan consolidation to help make your monthly bills more manageable.In general, when you take out any kind of loan, you’re paying a surcharge for the use of money; this surcharge is called interest, and is expressed as a percentage of the total amount of money borrowed per year – if you’re taking 100 dollars out at 5% interest, after a year, you’ll have to pay $105 back. This is where the lenders make their money.What can happen with student loans, particularly multiple ones from private lenders, is that you’ll sign up for a very high interest loan on the idea that you’ll be making enough more money that the interest rate doesn’t matter much at all. Sadly, if you find difficulty in setting up your career, this may not be the case, and a debt consolidation loan make may some sort of sense.In exchange you get a lower total monthly payment and a lower interest rate. Despite the reduced interest rate, you’ll almost certainly pay more for a consolidated loan over the life of the loan, due to the extended terms, though you’ll be paying less each month and feeling a smaller financial pinch. First of all, paying a little more in the long run is not as bad as paying late fees because you are missing payments. And secondly, you can usually pay off your loan early without a penalty once you get a good job or a promotion. This negates the longer term of the loan since your after college goal is usually to make more money anyways, you just need time to do it. Even if the lender charges an early payment fee, it is still usually a good idea compared to paying the extra interest over time.Why Should I Consolidate My Student Loan?Consolidating your student loan makes your finances easier to manage, and reduces your monthly fees. It’s also better than paying late fees and wrecking your credit rating. Repairing your credit can be a nightmare. The best thing to do is to preserve your credit and never let it get ruined in the first place. Even if you’re not in dire circumstances financially, consolidating your loan and reducing your payments can help you in other ways – like letting you accumulate funds for a down payment on a home, or other financial goals.