If you have different student loans, you might want to consolidate them at a certain point. Basically, consolidating means taking out brand new bigger loans to pay off every smaller loan.
Consolidating student loans is generally the process of taking out bigger and new loans to pay off your smaller and current student loans. This bigger loan has a single interest rate and monthly payment. This may also include some new repayment options.
Below are some of the pros and cons of consolidating student loans:
Pros of Student Loan Consolidation
1: You Can Combine Different Student Loans Into One
The primary benefit of consolidating student loans and the reason why most people consider it as an option is that it takes the hassle out of your debt repayment. Since you’ve consolidated different loans into a single loan, there’s no need to spending your spend your time keeping track of when to make every payment and how much you’ll pay.
With student loan consolidation, you’ll be able to keep a record of your debts, making them much easier to remember and enables you to stay ahead of all your payments.
2: You Can Lessen Your Monthly Payments
Several loan consolidations come with various terms and conditions. In many cases, once you consolidate your student loans, you end up paying a low rate of interest than the combination of original loans.
But, you should be careful and read the terms and conditions properly because in several cases, the interest rate is higher than the overall sum of the originals. Having a well-detailed discussion with your lender is essential to understand the conditions and exact terms of student loan consolidation.
3: You Can Pay Off Your Loan Faster
Other consolidation plans may provide you an option to pick flexible repayment terms. It can be advantageous if you’re a new graduate to earn an entry-level income, but you’ll rise up the ladder faster and earn a high salary in the future.
If you base your repayment on your earnings, you’ll start making low monthly payments that would increase gradually over a certain period of time.
Cons of Student Loan Consolidation
Getting a direct consolidation loan is not always in your best interest. It could be the right solution for you in such cases:
1: You’d Lose Your Federal Repayment Benefits
In other cases, consolidating your student loan might mean you’ll miss out on cancellation benefits or rebates tied to your loans. If you’ve been paying repayment, once you consolidate your loans, you’ll lose the credits you’ve accrued toward this.
2: You Like To Use Debt Avalanche Method For Faster Repayment
Most people prefer to focus on repaying their loans with high-interest rates first to save more cash in the long run. Since interest rates with federal consolidation loans are a weighted average of all loans, you won’t do it when you consolidate.
When you’re having trouble remembering every student loan payment due date, loan consolidation makes more sense. Whether you choose private loan consolidation or federal loan consolidation is dependent on the kind of loans you have and your comfort level with drawbacks and benefits. Once you understand consolidating student loans, you can make a well-informed decision on what would work best for you.