No matter what type of loan you take out, it comes with its own interest rate. It can seem like a riddle when trying to keep track of your loans and payments.
When it comes to loans, consolidation can be a great option. In consolidating your loans, it can become easier to handle because your multiple loans will become one and payment will become simplified into one monthly payment.
Before you decide to consolidate your loans, however, financial experts remind that there are some factors you should be sure to think about.
Consider the following factors, as listed by U.S. News & World Report
deciding whether loan consolidation is a good idea for you:
What Type of Loans You Have
Believe it or not, you have more than just your balance to consider what types of loans
you’ve taken out.
For example, whether or not you’ve taken out the same type or varied types can make a difference in consolidation.
If you’re like most borrowers, you’ve taken out a mix of both subsidized and unsubsidized Stafford loans. You’ll need to check with your loan provider to find the rates of each of your loans and whether or not the loans have fixed rates. If you’re unsure of your loan servicer, it’s whoever sends your monthly statements.
Assuming you decide to consolidate your loans, remember that a consolidated payment is an average of all your loans
What you need to consider next is, whether or not that average with consolidation will cause you to pay more interest over time. Combining lower and higher interest rates could cause you to do so.
Your Loan Benefits
Again, consider your types of loans
and the benefits that each offer.
For example, some types of loans
offer more loan forgiveness or flexible payment options than others. Combining those with other types of loans can limit or even eliminate such benefits and options.
Inversely, consolidation may help you gain access to such forgiveness options.
Savings Aren't Guaranteed
While consolidation can help confusion by switching multiple loans
into one, it shouldn't be the only reason you decide to consolidate. If you’re able to keep your payments on track, consolidation is likely unnecessary.
If you’re merely having difficulty keeping track of your separate loan
payments, consider automatic debit payments as an alternative to consolidation.
However, if you’re struggling to make payments, you will likely see relief in consolidation. You will likely end up paying more in the long run, but it’s worth it if you’ve been defaulting on your payments.
Consider Both Short and Long Term Goals
Decisions regarding loan
consolidation should consider the long term as well as the present. This is because your repayment situation will likely improve as time goes on, especially if your salary will increase as your career progresses.
If that’s not the case and your salary is projected to remain stagnant rather than grow significantly in the long term, it’s important to consider that as well.
If you’re currently struggling to pay back your loans
and are, perhaps, either defaulting on your payments or growing close to doing so, loan consolidation may be a great option for you.