Debt Consolidation – Banish My Debt

If over time you have accumulated multiple loans it may be wise to consider consolidating those loans into one single loan. There are a variety of ways in which this may be accomplished. Student Loans Multiple student loans must be handled in different ways depending upon whether they were funded originally as private loans based on personal credit or as federally insured loans. Private student loans may be consolidated in the same way that any private loans are consolidated. Federally insured student loans were placed with a private institution but they were guaranteed against default by the federal government. This type of loan has strict guidelines about how and when it can be consolidated. A federally insured student loan cannot be consolidated with credit card debt or any other kind of consumer debt. Private student loans may in some cases be consolidated with federally insured student loans but doing so is highly inadvisable. Once a private student loan has been consolidated with a federally insured student loan it then falls under the same strict guidelines as the federal loan. Further, federally funded student loans will only be consolidated at an interest rate equal to the weighted average of the rates on all the loans being consolidated. At present that rate is capped at 8.25% but with all interest rates on the rise, this cap may soon be increased. In addition, loans must be consolidated within a certain time period after the student either graduates or leaves school without graduating. Also, federally insured student loans cannot be consolidated a second time unless a newly funded student loan is rolled in with the loans that were previously consolidated. Multiple Home Mortgage Loans If your home currently carries both a first and a second mortgage you may want to think about consolidating the two. This is especially true if your credit is good and the interest rates on the current mortgages are more than two percent higher than current mortgage rates. However, there are other factors to be pondered when considering this type of loan consolidation. Refinancing your home carries certain closing costs. In order to avoid having to pay any out of pocket costs, these closing costs will be financed as part of your new consolidated mortgage loan. You should examine the affect that the refinancing will have on the cost you pay over the lifer of the loan. Consolidating your home mortgage or refinancing that mortgage multiple times can actually be more costly than just sitting with the current loans. This is especially true if you will not be staying in your home more than three to five years. Multiple Personal Loans You would choose to consolidate multiple personal loans for the same reason you would consolidate multiple home mortgage loans; that is, if the interest rates you are currently paying are significantly above the currently available interest rates. Again, in order for a loan consolidation of this sort to be viable, you must have good credit and the cost of the multiple loan consolidation must not outweigh the savings you would accrue. More On Consolidating Student Loans With higher education costs on the rise, many people these days have several student loans. These are not just medical students with several loans, but average students at public universities. It can help for those trying to pay them off to consolidate student loans into one bill and thus one payment. There are many advantages to having one loan besides the single payment each month though. Some that you may not be aware of are lower interest rates, a way to improve your credit rating, lowering monthly payments. Applying for an individual student loan can lower the interest rate because places offer incentives to use them for the loan. Some companies offer a lower rate for having the monthly payment automatically deducted from your account. There is also a benefit by making so many consecutive payments, on time, and that showing will lower the interest rate. This of course will make your payoff amount decrease since more money will go to the principle instead of interest. Having a single student loan can help your credit rating because of how your credit score is figured. Part of the score is made up of how many outstanding debts you have as well as the total amount due to each. Getting a student consolidation loan will give you a higher loan amount due but only for one loan and not the several others that you currently may have. Thus, your score will go up and even get better as you pay off that loan. It will not be an instantaneous fix as credit companies can take up to six months to report a drop of a loan off your report. But if you don’t use your credit unwisely in this time period your score will raise and when you do apply for something at later time you can possibly get a lower interest rate for that loan as well. Which will have you making lower payments on that item and help you pay off that loan faster too? Of course a single payment with a lower interest rate is going to give you lower monthly payments. Owing several companies with their own payment rates can make the total paid each month much more. One lump payment is going to be lower just for the reason that only one creditor is loaning the money with one rate. And each of these companies will have their own interest rate, which changes the payment. An individual loan will have more of the payment going to pay off that loans interest and principle at once over several loans where it can vary from loan to loan how much is paying it off. And most importantly right now rates are very low and getting a consolidation loan can also have you paying less because your rate can drop tremendously, depending on what it was before. While it can start your loan term back to the length it was when you got the student loan, with lower payments and a lower interest rate, you should be able to pay it off even faster and get out of student loan debt quicker than if you kept the individual loans.