If you are one of the many Americans who have accumulated multiple student loans from both federal and private sources, you may be wondering if it would be wise to consolidate private student loans, especially if your current situation requires making monthly payments to multiple lending agencies with different due dates.
Reasons for Consolidating Private Student Loans
There are many valid reasons to consolidate private student loans. Some of these include:
- You may be able to eliminate high interest loans.
- You may be able to reduce the number of monthly payments.
- You may be able to extend the length of the combined loan, thereby reducing the monthly payment.
- You may improve your credit report and score by reducing your risk of inadvertently missing payments.
The best time to consolidate private student loans is before you have missed any payments or been declared delinquent on one or more of your loans. These events will seriously hurt your credit score, and make the decision to consolidate private student loans more expensive or even out of reach entirely.
Downsides of the Decision to Consolidate Private Student Loans
While the decision to consolidate private student loans carries many potential benefits, there are a few potential downsides to consider, including:
- Consolidating your private student loans and extending the loan term in order to achieve a more affordable monthly payment amount can substantially increase the total amount of principal plus interest you will end up paying.
- Multiple attempts to consolidate private student loans, especially when subsequent consolidation efforts include other types of debt may actually damage your credit score, particularly if one or more applications are denied by lenders.
Consolidating Your Federal and Private Student Loans
In most cases, federal student loans have lower interest rates and much more flexible terms and private student loans. If you have more than one federal student loan to payoff, it may be possible to consolidate the federal loans without sacrificing their low interest rates and flexibility. It is almost certainly unwise, however, to pay off a federal student loan with the same loan you use to consolidate private student loans. The necessity of making two separate payments is almost always worth the extra effort.
How to Get Started When You Decide To Consolidate Student Loans
Your advanced degree in Archaeology or Medieval English Literature are no doubt worthy accomplishments of which you are justifiably proud. The courses required to attain those degrees, however, probably did little or nothing to advance your personal financial management skills. If managing your student loans and other debts has become difficult given your current salary, it would almost certainly be an advantage to seek advice from a nonprofit debt counseling service. Here are couple of ways a debt counseling service can help:
- The debt counselor can take an objective look at both your income and debt payment burden, and help you develop a realistic monthly budget that contains an allocation for debt repayment.
- If the amount available for debt repayment is too small to service all outstanding debts, the debt counselor can advise you as to all of your alternatives, including consolidating your private student loans.
- If the decision to consolidate private student loans is really right for you, the debt counselor can help you obtain a copy of your credit report, and advise you as to the interest rate and terms you should look for when seeking your consolidation loan.
Here Are A Few Things Look For When Selecting A Debt Counseling Service:
- Beware of service providers that guarantee they can solve your debt problems before they have reviewed your finances
- Make sure that both the debt counseling service and the individual debt counselor you work with are accredited by a national trade association.
- Claims that seem to be too good to be true probably are. Unfortunately the credit counseling business has attracted more than its share of unscrupulous operators. It takes time for regulators and trade associations to weed out the bad actors. You are probably safer using a debt counseling service that has been in business for at least 5 to 10 years.
When you are ready to begin selecting a lender to consolidate private student loans, be sure to interview each loan officer you might work with carefully before filling out an application. Bring a current copy of your current credit report with you, and tell the loan officer what interest rate and loan terms you want. Ask if there are credit score thresholds required for the kind of loan you are looking for, and if your current credit report and score would satisfy those thresholds.
Finally, in all likelihood the loan officers you interview will be dressed in appropriate business attire. No matter what your current employer requires for work clothes, try to arrive at each interview dressed in a manner that will instill confidence in the loan officer you are meeting.