Debt Consolidation And Credit If you have just graduated from college, the likelihood is that
you are under a large amount of debt in the form of student loans.
You might be wondering if there is any way to reduce the amount you
have to pay. One solution for reducing your debt is to consolidate
your student loans. Student loan consolidation is similar to
refinancing a house on better terms: although the principal of the
loan will not be affected, the interest rates you can lock in when
you consolidate student loans to a fixed rate can be substantially
better, reducing your monthly payments by up to forty percent.
Plus, you might be able to stretch out your payment time to reduce
your monthly payment amount even further.
With higher education costs on the rise, many people these days have several student loans. These are not just medical students with several loans, but average students at public universities. It can help for those trying to pay them off to consolidate student loans into one bill and thus one payment. There are many advantages to having one loan besides the single payment each month though. Some that you may not be aware of are lower interest rates, a way to improve your credit rating, lowering monthly payments.
Check Credit Rating The disadvantage when you consolidate student loans during your
initial six-month grace period is that you must start making your
payments right away. This can be difficult if you have not found a
job after graduation, although you can wait until just before the
grace period ends to consolidate, and still receive the lower
rates. Furthermore, once you have consolidated your student loans,
you cannot un-consolidate them again, so make
sure to consider your choice
carefully.
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Improve Credit Rating How is Interest Calculated When I Consolidate Student
Loans?
When you consolidate student loans, your lending company pays off
your
government loan and issues you a
new loan under its own name. The typical way to determine the
interest rate on the new loan is to take the average interest
rates on all of the student loans, and offer a new rate that is
an eighth of a percentage point higher (up to a maximum interest
rate of 8.25%). Although agreeing to a higher interest rate
might not sound like a good reason to consolidate student loans,
this rate is fixed over the
life of the loan, whereas the
government rates will fluctuate. Since rates are at an all time
low right now, locking in the current rates might be a good
idea. Furthermore, many banks give you ways to bring down the
percentage rates. For example, some lending institutions will
drop the rate by as much as a quarter point if you agree to
automatic deductions from a checking or savings account, whereas
others drop the rates after a certain number of timely payments.
As an additional bonus, there is no penalty for paying off your
consolidated loan early.
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Credit Online Rating Report When Would You *Not* Want to Consolidate Student Loans?
Before you decide to consolidate student loans, you should
carefully consider your alternatives. For example, did you realize
that it might be possible to have your student loan cancelled
altogether? Student loan forgiveness options include volunteering,
for the Peace Corps for example, or working for the government in a
low-income area as a teacher or doctor. Cancellation is not
possible, however, after you have consolidated your student loans.
If this kind of work interests you and is available, it could be a
better option than loan consolidation.
What is the interest rate on a consolidated loan The interest rate for a Consolidation Loan is the weighted average of the interest rates on the loans being consolidated, eighth of one percent. This rate is fixed for the life of the loan and cannot exceed 8.25%. Effective July 1, 2005, rates on Stafford Loans in grace are 4.70% and in repayment are 5.30%. The rate on your Consolidation Loan will be fixed for the life of your loan. The interest rate on a Consolidation Loan is set according to federal law.
Credit Score Rating Scale Another time to hesitate before you choose to consolidate
student loans is when you are close to finishing your payments.
Stepping up the payments and saving yourself some interest and the
hassle of consolidation might be more advantageous to you.
Like many college loans, the PLUS loan (Parent Loan for Undergraduate Students) is a type of federal loan with a variable interest rate. This means that the monthly payment will change when the government reconfigures the interest rates annually (July 1). The interest rates on PLUS loans are generally higher than other types of college loans so when interest rates increase, PLUS loans can be greatly affected. Since college loans are consolidated by social security number, parents should apply separately for PLUS loan consolidation.
Bad Card Credit Credit People Finally, there are loans that you might want to keep open
because they offer special advantages. For example, if you are
considering going back to school and you have a Perkins loan, you
would not want to consolidate that with your other student loans.
The government will pay all interest on Perkins loans while you are
in school, but if you have chosen to consolidate student loans, you
will not be able to receive this benefit. You could always choose
to leave any special kinds of loans out of the consolidation mix,
however.
Catalogue: Finance | Debt Consolidation
Title: When Should You Consolidate Student Loans? By: Mark
Kessler
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