In case you’re making multiple student loan payment on each of your student loans, you might feel the urge of consolidating them. Consolidation involves combining all your debts into a single monthly payment so as to relieve the stress of allotting multiple payments to multiple creditors. Even though student loan debt consolidation might streamline your student loan repayments, this might not always be the best option for you. Before you apply for a debt consolidation loan from the US Department of Education, you should be aware of the advantages and disadvantages of debt consolidation.
Student debt consolidation – What are the advantages?
Apart from the benefit of a single monthly payment which is indeed a convenient option, a debt consolidation loan may offer you different repayment plans. Most federal student loans offer at least a couple of repayment plans but with the debt consolidation loans, the student gets a number of options including the income-based repayment plans. With a standard repayment plan, a loan might lower your total student loan payment as because you are allowed to repay the loan within fifteen to thirty years. Instead of making multiple payments to multiple creditors, you just have to make a single payment towards the debt consolidation loan. Be aware of the fact that many debt consolidation loans can carry variable interest rates and you should be careful about the rate change.
Disadvantages of debt consolidation
One of the biggest issues that you may face with student loan debt consolidation is that you might end up paying more in the long run. If your repayment term is extended to a very long period, you might end up paying more due to the accumulated interest rates over a longer period. Another point to note is that if you combine your debts during times of dropping interest rates, you may get locked into a higher interest compared to one that you could have secured in the near future.
Which is the right option for you?
If you’re not able to repay your loans on time, debt consolidation is definitely the best option for you but if you don’t make timely payments towards your debt consolidation loan this can hurt your credit score. Therefore, you should make sure you don’t forget making timely payments.
Hence, instead of defaulting on your payments, opt for
student loan consolidation and get a loan from the US Department of Education.
