If you’re considering student loan debt consolidation you might think that getting a consolidation will solve all your repayment problems. Usually, a consolidation does make the financial burden easier by lowering your interest rate and your payments but there are cases where this doesn’t always occur. You should go into this arrangement with your eyes open as an educated consumer and then you won’t find any unpleasant surprises or get into a loan agreement that isn’t the best for you.
#1: Be aware that this stretches out the debt burden longer.
If you’re looking into student loan debt consolidation, then just be aware that by consolidating the loans you’re almost always going to be paying longer than you would otherwise. The standard repayment is 10 years, but you can stretch that to 30 if you want even smaller monthly payments. While that might seem like a blessing if you’re having trouble making your payments now, you should consider how much more it will cost in the long run. The interest over the added years adds up to a substantial amount of money. But if you need the smaller payments more than you’re concerned about the extra money over time, student loan debt consolidation is definitely something that can work for you.
#2: The interest rate is locked in, for better or for worse.
Getting that locked in interest rate can also seem like a blessing and it usually is. When you have a variable rate loan, the rate can fluctuate and raise which affects how much you owe and how much you must pay. If you get a consolidation you lock in a single rate, which is great news when interest rates go up. If the interest rate drops, however, you’re still locked in. For most people, the knowledge of a single interest rate that doesn’t ever go up trumps the worry about paying more than necessary if the rates drops below the locked-in rate on the loan.
#3: If you’ve defaulted on a loan that you want to consolidate, you might want to wait a year before doing so.
If you’ve defaulted on a loan, you can rehabilitate it by making 9 to 12 consecutive monthly payments on-time. This removes the damaging default from your credit (though not the smaller late and missed payment dings). If you opt for student loan debt consolidation after only 3 consecutive payments when you qualify, the default will stay on your report for 7 years.