College student loan consolidation is a good way to save money on your monthly student loans. Most people opt for shorter terms to start with, and this can create high monthly payments once you have to start repaying the loans. Depending on what kind of program you went through, you may not make enough money to cover the cost of this high payment for several years after college. This is why a consolidation plan can make a lot of sense. Before you jump in to a consolidation plan, you should understand how they work and how they save you money.
Short Term Savings
In most cases in order to benefit from a consolidation plan you need to lengthen the term of the loan. This means you will take out a new long with a longer term, and use this to pay the existing loans. This can drop your monthly payments drastically. However, there is a catch. By lengthening the term of the new loan you are paying more money in interest over the life of the loan. If you are in a position where the existing monthly payments aren't manageable, then consolidation can be a good option. If, however, you can afford to pay more, you should. Consolidate with the least possible number of years for the term while keeping your payments low enough to be affordable. When you have extra money to send, it's a good idea to do so. Going from a 10 year term to a 25 year term on a standard $50,000 loan with a 6.8% interest rate is going to end up costing more than $60,000 just in interest over the 25 year term. This is why you want to pay down what you can when you have extra.
Credit Matters
It is easier to qualify for a college student loan consolidation than it is a traditional loan. This doesn't mean that everyone will qualify. You need to be in good standing with your loans before you will be considered. This means if you see you may run in to problems making the payments, you need to quickly look in to consolidation. Your credit score will also determine the interest and the term you qualify for. Pulling your credit before you start shopping for student loan consolidation can save you from getting in to a bad deal later. Most companies will use your credit score to determine what type of programs you qualify for, so knowing it beforehand will save you time. The better your score, the lower the risk, and the more flexibility you will have. You can still consolidate with less than perfect credit. Your options may be more limited, and the rates may be slightly higher. Even with that said, it can still save you money on your monthly bills if you need it.
Short Term Savings
In most cases in order to benefit from a consolidation plan you need to lengthen the term of the loan. This means you will take out a new long with a longer term, and use this to pay the existing loans. This can drop your monthly payments drastically. However, there is a catch. By lengthening the term of the new loan you are paying more money in interest over the life of the loan. If you are in a position where the existing monthly payments aren't manageable, then consolidation can be a good option. If, however, you can afford to pay more, you should. Consolidate with the least possible number of years for the term while keeping your payments low enough to be affordable. When you have extra money to send, it's a good idea to do so. Going from a 10 year term to a 25 year term on a standard $50,000 loan with a 6.8% interest rate is going to end up costing more than $60,000 just in interest over the 25 year term. This is why you want to pay down what you can when you have extra.
Credit Matters
It is easier to qualify for a college student loan consolidation than it is a traditional loan. This doesn't mean that everyone will qualify. You need to be in good standing with your loans before you will be considered. This means if you see you may run in to problems making the payments, you need to quickly look in to consolidation. Your credit score will also determine the interest and the term you qualify for. Pulling your credit before you start shopping for student loan consolidation can save you from getting in to a bad deal later. Most companies will use your credit score to determine what type of programs you qualify for, so knowing it beforehand will save you time. The better your score, the lower the risk, and the more flexibility you will have. You can still consolidate with less than perfect credit. Your options may be more limited, and the rates may be slightly higher. Even with that said, it can still save you money on your monthly bills if you need it.
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