So, consolidating your student loans is a right choice. It can be helpful if you have a large balance spread out across multiple lenders. Before you apply, make sure you know the pros and cons of consolidation.
Pro's
1) Low Interest Rate
Consolidating helps you lock in a low interest rate. Student loan rates are currently at all-time lows, making this the perfect time to consolidate your federal loans. If you consolidate, your new interest rate will be calculated by averaging the rates on your current loans. If you don’t consolidate your loans, your rates could increase in the coming years.
2) Increase Credit Score
Consolidation comes with some other perks. Consolidating your student loans can help increase your credit score by reducing the number of open accounts on your credit report. You can also get a better deal on a consolidation loan if you meet certain special requirements, such as if you graduate within 6 months of the consolidation period and/or if you pay your loan on time consistently.
3) Manage Loan Debts Easier
Consolidation makes it easier to manage your debts. Borrowers with multiple federal student loans can have a hard time keeping track of when to pay and how much is due each month. When you consolidate your loans, you’ll only have one payment to make each month. Plus, you’ll only have one lender to deal with.
Con's
1) Increase Overall Cost of Loan
Anyway, consolidating can increase the overall cost of your loan. When you consolidate your student loans, the debts are combined into a new loan with a longer repayment term. This new 10-30 year term allows you to reduce the amount you have to pay each month but increases the long-term interest costs of your debts. If you can afford to pay off your current student loans quickly, it may be a good idea not to consolidate.
2) Alternatives
Consolidation may not be your best option. There are other programs available to help you repay your loans or have them forgiven. Government programs exist that help borrowers repay their student loans by doing community service or becoming a teacher in certain areas. If you have a Perkins loan, there are opportunities that allow you to have the debt forgiven. It is a good idea to research all your options before you consolidate.
Life after college is hard enough without having to worry about your debts. Consolidation can help make it easier for borrowers to manage loans. Before you decide that consolidation is the right move for you, be sure to consider all the pros and cons.
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