Even though consolidating your student debt will streamline the repayment of your student loans, it is not a good option for everyone. This is because different people have different loans from different lenders and financial situations. Therefore, before you consolidate your loans, you must weigh the options. Below are 5 things that you must consider before you consolidate your student loans.
The interest rates
If you consolidate your debts using a private loan, you will have to choose between a variable and a fixed interest rate loan. With fixed rate loans, the interest rate is usually higher; however, you will be sure that this rate will never change for entire period of the debt repayment. You may be lucky to get a loan with a low variable interest at the moment. However, this interest rate is subject to change depending on the money market and you may end up paying more money in the end. A variable interest rate may be ideal for smaller loans. However, for bigger loans, a fixed interest rate is more sensible because it provides more security.
Terms of the debt
If you are lucky, refinancing your debt can help you to drastically reduce your monthly repayments. However, you may end up paying more in the long run depending on the length of time that you choose to service the loan. Usually, the terms of the debt may be extended to 20 years or even more depending on your monthly repayments. Therefore, ensure that you know every detail of the consolidation before you settle for it.
Penalties for prepayment
Before getting Student Loan Consolidation, ensure that you confirm the penalties for paying your debt early. This is important because you might be penalized and forced to pay a small fee for early debt repayment. However, the penalty terms will depend on the financial institution that you are working with. It is best to avoid companies that have prepayment penalties if you want to repay your loan faster.
Loan deferment options
It is difficult to tell how your future will be in terms of finances. People lose jobs, some are rendered bedridden, sick or become disabled as a result of accidents. Such misfortunes are part of life and will negatively impact your finances. The greatest advantage of federal student loans is that you can defer your monthly repayments if you have financial difficulties. However, this is not the case with private loans. Therefore, ensure that you understand the policies of different financial institutions with regard to financial hardships. This way, you will prepare yourself in case you encounter financial problems in future. Always choose a lender that has better deferment options.
Making separate repayments for your student loans can be quite a challenge. This is especially true if you are servicing several loans from different financial institutions. It will be easier for you to consolidate these loans into a single debt with one monthly payment. This way, you will save yourself the headache of having to keep up with different repayment deadlines from several lenders.