Paying off your student loans seems like a steep journey to the finish line. If you are eager to get rid of your debt, the number of loans you have and your interest rate can affect how fast you are able to pay them off.
Student loan consolidation is a great option for borrowers with federal or private loans who have multiple student loans at various interest rates. Wondering if student loan debt consolidation is right for you? Let's look at 5 reasons why you may want to consider trying it.
1. Single Monthly Payment
Student loan consolidation is a process where all your loans are combined into one loan with a lower interest rate. Instead of having to make multiple debt payments each month, you'll only be responsible for one payment, so it simplifies the process of getting out of debt.
Things are much less stressful when you have just one monthly student loan payment to make. It's easier to track progress and much easier to remember. You'll also have a better understanding of where you stand. With several smaller loans, you may get the impression that your debt is not significant or a big deal.
Seeing the whole balance combined gives you a better realization of what you current situation truly is and can help motivate you to make some serious progress with debt repayment.
2. New Interest Rate
We all know that a high interest rate means you're paying more money each month that isn't being applied to the principle balance. When you consolidate your student loans, it averages out all your different interest rates to give you one new interest rate. Often times, your interest rate will be lower than some of your highest rates and that will only help with your debt repayment progress.
If you previously had a variable interest rate on your student loans, consolidating them would be a great way to secure a lower fixed rate.
3. Lower Monthly Payment
Student loan consolidation can help lower your monthly payment by extending your repayment term. Extending your repayment term spreads out your payments even more over time. So while you'll be required to pay less each month, you may pay more over time in interest. Plus, you'll have student loans for much longer than most other people if you stick to the repayment term.
On a positive note, if you are struggling to make payments now and your budget is tight, student loan debt consolidation can really help you make ends meet for the time being. When you start to earn more, you can always pay extra on your student loans to pay them off before the end of your term.
4. Resets the Time Frame for Deferment and Forbearance
If you have federal student loans, you may be interested to hear that consolidation resets the 3-year time frame on certain deferment and forbearance plans. Since consolidating your loans means you're getting a new loan, you'll also get a fresh start in terms of setting up deferment or forbearance should you ever encounter a financial hardship that prevents you from being able to make payments on your loans each month.
5. Release a Co-signer
If you originally had a co-signer when you applied for student loans, you can most likely release that person when you consolidate your loans. If you have a better credit history and a steady income, there's a good chance you won't need a cosigner anymore when you receive your new consolidated loan.
Releasing your co-signer means they no longer have to be subject to any risks if you ever defaulted on your loan. Plus, if you keep making consistent payments, you can continue to build your own credit profile without having to rely on anyone else.
When to Consolidate Your Loans
While there are many clear benefits to consolidating your student loans, there is a right and wrong time to make the decision. If you are close to paying off your student loans, have only one lender, or don't have an issue with making payments currently, you may not want to go through the consolidation process. Also, if you are currently in your grace period, you shouldn't worry about consolidation because if you do consolidate your loans at this time, you may be forced to start making payments immediately and lose the remainder of your grace period.
Consolidation is best for borrowers who are looking for a way to simplify the debt repayment process by cutting down to one student loan payment and/or lowering their student loan payment and interest rate. If you are having trouble paying off your student loans, a lower payment now may help your situation as long as you are willing to put more toward your loans later when your situation improves.