Receiving a bill from several lenders each month is intimidating and not always the best way to pay off your student debt. Private student loan consolidation can combine all of your student loans into one loan, with one interest rate, and one monthly payment.
To be considered for student loan consolidation, you must be a graduate, have a good financial standing, and good credit. Often times, a co-signer can help you secure an even better rate. In many cases, loan consolidation saves money and stress, but there are some instances where it should be avoided.
When to Consolidate Student Loans
- After Periods of High Income: If you’re receiving a bigger paycheck, this is the perfect time to seek out student loan consolidation. Since you are making more money, you have a better debt to income ratio, which allows you to lock in a lower interest rate.
- Before You Quit a Job: Before you hand in your resignation letter, consolidate your student loans. Doing so will help lower your monthly payments and help you pay your monthly debt payments while you look for a new job. Most importantly, most lending companies will not allow you to consolidate your loans if you are unemployed.
- When You Have Multiple Servicers: If you have more than one loan with more than one company, it can be a hassle keeping your payments straight. Loan consolidation takes the stress and guesswork out of your monthly payments.
- When You Can Get a Lower Rate: Securing a lower rate can help you save money on your monthly payments, as well as in the life of the loan. Even just securing a new loan for one percent less than your original rate can result to thousands of dollars save in the lifetime of the loan.
When Not to Consolidate Student Loans
There are so many benefits to consolidating your student loans, but it is not for everyone. You should not consolidate your loans if:
- You Want Federal Loan Benefits: Some individuals will qualify for certain loan forgiveness programs with their federal loan. Other benefits of federal loans include income-based repayment plans and the interest may be tax deductible. Once you roll your federal loans into a loan consolidation with a private lender, you will lose these benefits and eligibility to loan forgiveness plans.
- You Want to Prepay Higher Interest Loans: If you are paying more money towards a higher interest loan, then consolidation might not be the best choice for you. Once you consolidate your loans, it is as if you have one new loan. So even if you only have five years left on one loan, once you consolidate it, you will have a new loan for a different amount of time.
Remember to do the math and your research before deciding whether student loan consolidation is right for your financial situation.
Check out Credible’s unique student loan consolidation marketplace to compare lenders and get the best offer possible.