So, you've graduated college and started an internship. Money is coming in, you have a great girlfriend, and you start to feel like you're part of "real life." The only problem is you can not afford anything. You're making more money than your parents, but every single paycheck you get is going straight to your student loans. Maybe it's time to consolidate.
Student loan consolidation really is not as scary or intimidating as it sounds. To consolidate means simply to "combine." And that's precisely what student loan consolidation is; combining all your student loans into one.
If you want to have enough money left over each month for that new car payment then the benefits of consolidation are outstanding. Say you have one loan with a 15% interest rate and another with 12%. You can consolidate by getting a third loan (with an interest rate of 8%, for example) to pay off your original two. Now, you'll only have to worry about a single payment (that's much lower) and that new car will be just around the corner.
You can consolidate your loans with:
o Another student loan – This is probably the most obvious way of consolidation. If all your loans are from the same company, then you'll most likely have to stick with them to get your consolidation loan.
o Home equity loan (HEL) – Great because it has a fixed rate, but be aware that if you miss a payment, your home may risk foreclosure!
o Credit card (with 0% APR) – If you do not own a home, but have good credit, this could be a good alternative; you might be able to save quite a bit on your interest.
Warnings about Consolidation
Be sure you do your math. Consolidation can usually help, but not always. There are also a couple of things to be aware of if you do consolidate:
o Deferment – If you consolidate, you may disqualify yourself from being able to defer (delay) payments on new loans.
o Perkins – On rare occasions, if you have a Perkins loan you can lose the option to cancel your loan.
Make sure you get out your calculator (or use an online student loan calculator) before you decide to consolidate or not. Loan consolidation has been able to loan payments in as much as half, but depending on the interest rates of your loans, that's not always the case.