How Student Loan Consolidation Can Lighten the Weight of Student Debt

May 16, 2012 by  Filed under: Debt 

For so many college goers, different forms of financial aid are essential to completing their college careers. But over the four or five years required to graduate, the size of the debt accrued can be crippling, which is why student loan consolidation is such an important move.

One of the perceived advantages of financial aid is not the idea of securing the lowest interest rates possible, but that repaying the loans themselves is put off until graduation. It provides breathing space for those who need to concentrate on studying and not working, but it also creates a huge disadvantage.

The reality is that many graduates beginning their post-college lives in debt by hundreds or thousands of dollars thanks to the combined terms of multiple student loans. The delay in paying them back means the total debt must be faced at once. But there is a way to survive this situation.

Taking Control of Student Debt

The whole concept of student loan consolidation is that the individual loans that a student might take out over the course of their college career can be put together into one loan sum. This not only reduces the headache involved in keeping on top of things, but the interest payable and the drain on finances.

The problem is that individual loans usually have differing rates of interest, payment schedules and, in the case of late or missed payments, differing fines and punishments. Financial advisors will agree that only by bringing together all debts into one sum can the lowest interest rates be secured, and the financial drain curbed.

This action will mean that the debt created by student loans can be better controlled overall, which is the first step to a stronger financial position.

Better Interest Rates

Of course, there is no use in consolidating existing loans if the interest rate to be charged is no better – in fact, without the right interest rate, student loan consolidation could prove to be a very expensive move.

Identifying which rate really reduces costs is therefore important, and securing the lowest interest rates possible is done by looking at a number of factors. Firstly, the total sum owed needs to be calculated, which is easily done by adding up the individual loans to find out the total existing debt.

Then, by discovering the credit score from FICO, the likely interest rate to be charged can be estimated. For example, with a score of 500, the rate charged on a student loan is going to be higher than if the credit score is 650. Estimating the total interest already being spent then allows a comparison to be made.

Improve Repayment Options

Being able to find lenders that provide the best student loan consolidation deal is crucial to making the exercise worthwhile. Individual loans can be affected by different interest rates and repayment schedules, but the range of possible lenders is equally various, making identifying the best deal very complex.

It is a good idea to carefully log the range of options available, and to assess the three or four best deals from them. The information needed includes the lowest interest rates charged, as well as loan size limits, and any fines and hidden charges that may apply.

Obviously, the ideal candidate will be able to buy out the existing student loans at a cost lower than the loans themselves generate. Only then will the move provide the benefits that it should.

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