Student loan consolidation can be a helpful financial tool, but only if you make a move when the time is right. Student loan consolidation pays off the debts from your student loans and replaces them with one single loan. If you are confused about when you should consolidate your student loans, here are few good times to keep in mind.
When you have multiple student loansDo you dread opening the mail box? Is your desk stacked with student loan statements? Do you have a hard time managing all the balances and due dates from your student loans? Student loan consolidation takes all of your outstanding debts from student loans and pays them off with one single loan. You then make one payment each month to your new lender, instead of juggling different balances and due dates. So, in addition to paying off multiple sources of debt, student loan consolidation may be a good option for you if you have organization challenges with your finances because you will not have to keep up with multiple bills each month. You can even have your payment drafted from your account electronically instead of having to write a check. In short, student loan consolidation can simplify your financial responsibilities and help you better manage your debts.
When you can get a lower interest rate.One of the best reasons to consolidate your student loans is to take advantage of a lower interest rate, which can save you money on your monthly payments. Look into debt calculators and crunch some numbers to see what different interest rates and terms mean for your repayment options. Also shop around for lenders that offer student loan consolidation programs. If you can take advantage of a lower interest rate, it might be a good time to consolidate your student loans so you can protect yourself and your finances from future surges in the interest rate environment.
When you are far from paying off your student loan balancesIf you have low balances on your student loans and you are within a couple years of paying off what you owe, you might not be able to take advantage of any savings that student loan consolidation can offer. But if you recently graduated and you have substantial outstanding balances on your student loans, you might be able to benefit from student loan consolidation.
Remember that student loan consolidation can be a good move for your finances, but it is not a magic bullet. When your student loan balances are zeroed out you may have an inflated sense of how much money you have, but don’t fall into the habit of racking up more debt from other sources. Also remember the longer it takes you to repay your debt, the more it will end up costing you due to interest, so though you may spend less each month if you have a longer term, you will spend more in the long run.