” In this post we’ll help you answer that question by explaining how a debt consolidation loan works, what the alternatives are, and describing when debt consolidation can help you and when it will not. You need all the information in order to make the best decision, so that you can turn your finances around as quickly and painlessly as possible. It’s a loan that allows you to pay off your current debts with a new loan that has different terms (usually from a different lender) than your current loans or credit cards.The reason this can be helpful to people with a lot of debt is that it can solve three of the worst problems you face: 1) High interest rates Some types of debt (particularly credit cards) can have extremely high interest rates – up to 25% or more.For federal student loans the rate will be a weighted average, as mentioned above.
While this results in a lowered monthly payment, that means you may end up paying more on your loan due to the extended time you will then accrue interest.
As with all financial questions, the answer is highly dependent on your individual financial circumstances.
To learn more about how to consolidate your federal student loans, you can check out the government website and begin your application here.
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That being said, you may meet the set of requirements no problem and be able to lock down a lowered interest payment. As mentioned above, student loan consolidation takes away some of the protections attached to federal loans.
By consolidating your federal student loans you forfeit things like some loan cancellation benefits, interest rate discounts, and principal rebates. You’ll want to make sure that it makes sense to consolidate your loans under a new interest rate, as well.If you’re curious about the potential pros and cons of student loan consolidation, here are some of the details that can help you make the decision yourself. Private student loan consolidation companies generally look at a few details as they create their offers: Some consolidation companies have a pretty tough criteria to fill.In the case of private student loans, it can be challenging for some borrowers to qualify for consolidation, particularly borrowers who have a lower credit score or who don’t earn above a certain annual income.When you consolidate your student loan debt you essentially combine multiple student loans (usually with various interest rates) into one new loan with a single interest rate.Because of the differing terms and regulations, federal student loans and private student loans aren’t generally consolidated with one another.A single loan can prevent missed payments and help streamline the entire process.