Avoid the Pressure: Consolidate Student Loans
For most students that graduate from a two or four year degree program and then enter into the workforce, paying back student loans within the 10 year allowable time can be a real challenge.
Studies have shown that many students do the following within the first 10 years after graduating: purchase at least one vehicle, change jobs at least once, have at least one child, most likely buy a house, and even get married.
All these expenses can be difficult to manage on top of various federal and private school loans that may be outstanding.
One major option is to consolidate student loans, which means borrowing to combine your student loans, pay them off, by only paying one payment on one larger balance with a longer term loan. Most previous students, as well as ones still in school, have the option to consolidate their student loans as long as they have some form of income.
It is very important to compare how the consolidation and your student loans differ based on various interest rates, and it is equally important to consider all of your options.
Advice can be given to help consider and understand both the advantages and disadvantages of consolidating your student loans. This advice can be given by a variety of people including a financial planner, consultant, or ever your personal banker. Generally the biggest advantage to consolidate student loans is that it takes the multiple payments from different lenders you may have a literally pays off these loans, leaving you with one payment to make to the consolidated loan lender. It is safe to assume that you will pay less per payment by consolidating compared to the original multiple payments.
The logical reasoning behind this is that your “pay back” term is expanded, therefore you pay less per month over a longer period of time. The negative to working to consolidate student loans is also related to the repayment stretch. You will have to keep making payments for much longer, which may be up to 30 years, before you will be debt free with regards to the student loans. This means that over the life of the consolidated loan you will pay significantly more in interest, which may be a huge dollar amount if you actually make only the required payments.
You can also lower the interest amount by paying more than the minimum monthly payment. However, it is important to distinctly specify that the extra payment is strictly for the loan principal. If you begin this when the student loan starts of soon after, you can rapidly cut payments off of your loan.
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