December 11, 2017

Student Loan Consolidation Will Save You Money Every Month

Graduating from college is a thrilling time in the life of many people. However, although many students may be aware of the accumulation on the balance of their student loan, they rarely think about the payback period. Student loan consolidation provides many ways to ensure that this money owed does not become a millstone around one’s neck.

Student Loan Consolidation

By understanding the consolidation process one will find that there are many ways to save money as well as make repayment more manageable. Taking all the money owed from schooling and putting it into a single loan ensures lower payments as well as provides many other benefits. This move will also lower ones debt-to-income ratio as well as raise credit rating scores. This does, however, require refinancing the loans.

One of the problems for student loans is that they are under a variable rate interest system. This keeps the monthly payments in constant fluctuation because the rate is set by the governments. With a consolidation program, however, one can lock in a low fixed interest rate that cannot change through the life of the loan. Although student loans originally were some of the lowest available, on July 1st, 2006, the government raised their rates significantly.

Consolidation of student loans works by stretching payments over a longer period of time. This can reduce payments as much as 60%, but it’s important to remember that the interest paid over a longer period of time will result in a higher payback in the long run. Much depends on the lender selected as they often have different types of loans available, incentive plans, and requirements that must be met to qualify for the lowest rates. Even something as simple as automatic payments from a checking account can result in great savings.

Although most students are unaware, because it doesn’t show in school financial records, each term or semester is actually a different loan. Upon graduation from a four year college, it would mean 16 different loans have been secured and would show on a credit report. Although this money is important when paying for college, the effects the accumulated loans can have on one’s credit become very apparent when trying to buy that first car or home. Through the consolidation process all student loans are close and replace by a single loan for the total balance. This not only reduces the monthly payment, but also lowers the debt-to-income ratio.

One of the advantages of refinancing a student loan is the fact that it is extended over a much longer period of time which, by itself, will lower the monthly payment. When looking to finance at a later point in time, this debit-to-income ratio is used along with credit scores to determine creditworthiness. A favorable ratio can also help to ensure lower interest rates on future purchases which can save thousands of dollars in the long run.

Upon graduation many students find a difficult transitional period. Suddenly there is no extra student loan money to depend on for the basics. With careers just beginning and expenses high, many graduates turn to high interest credit cards to sustain them until they become established. On average a college student carries no less than six credit cards that have a combined balance of around $2100 during school. Upon graduation many students max these out in a very short amount of time. These not only carry higher interest rates, but also limit the possibility of ensuring good credit upon graduation.

By pursuing student loan consolidation, credit card dependence will lessen freeing up hundreds of dollars on a monthly basis. This will not only allow the borrower to breathe a little easier, but have the cash needed to make ends meet and possibly even enough left over to apply additional money to the original loan each month. Paying $200 per month above the minimum can change a 30 year loan into a 10 year loan which will ensure the future is debt free. Consolidation itself is fairly simple and easy because the majority of applications are now taken online. It’s important, however, to research lenders who are offering this option as, in many cases, it’s a one shot deal.

For more information, click here: http://www2.ed.gov/offices/OSFAP/DCS/consolidation.html