Student loans or education loan are quite difficult to understand because of how many programs and options go along with them.

I’m talking about deferment, forbearance, subsidized, subsidized, loan forgiveness, and income drive repayment plans, just to mention a few terms.

 

We will be writing several more blogs in the future about student loans to help give you the knowledge to make the best financial decisions for you… after all KNOWLEDGE IS POWER. For information about repayment options other than consolidation, Click Here. 

… but today I am only specifically going to address “SHOULD YOU CONSOLIDATE YOUR LOANS”?

The first thing you need to find out is what type of loans you do have! Are they all federal loans or private?

The reason is that federal student loans offer a lot more benefits such as forgiveness, income driven repayment plans, and even rehab programs if you ever let your loans default.

When you pull up your credit report, your loans can look a little overwhelming.

It is common for a student to have 10 loans if not more.

Where the confusion comes in is that it’s hard to remember to write out 10 different checks to pay those 10 separate loans.

This is because every student will get a LOAN SERVICER and you only make 1 payment to the loan servicer and that company will then divvy up your money to pay on each loan.

So why would you consolidate if you still only pay 1 payment? Well it’s a numbers game that requires a calculator. Here is an example:

Loan 1-  5,000     6%

Loan 2 –  3,500    3%

Loan 3-   8,000    5% 

Loan 4-   6,500    3.5%

Loan 5-   5,200    2.8%

Loan 6-   7,000    4.5%

Loan 7-   12,000  5.8%

Loan 8-    4,000   4.5%

Loan 9-    3,700    7%

Loan 10-  9,400   5.2%

So as you can see.. each loan will have it’s own interest rate. So if you can consolidate everything into ONE 5% loan (hypothetically), you would be making out on any loan over 5%, but why would you do it on any loan under 5%?

That answer comes down to debt stacking and paying the principal off faster. 

Instead of paying $20 on 10 different, you would now be knocking off $200 (minus the interest) off of the principal.

One advantage to NOT consolidating is have 10 loans that have 120 month term on this. This will certainty help you raise your average age of accounts which is worth 82.5 points in the FICO algorithm.

I personally think that paying the debt off is most important, but that is just my opinion.

So if you have student loans or education loan, and are unsure of what to do. CLICK HERE to speak with our Student Loan Department. They offer a FREE consultation and will help you decide the best course of action for your situation.

If you have any other questions about finance, credit building, or traveling the world for FREE, you can always rach out to our staff at (888) 809-4BNB.