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What is a Consolidation Loan and How will it Benefit you
Simply put, debt consolidation involves taking out one larger loan to pay off an existing debt.
Why would anyone want to take out a loan to pay off another loan?
The answer is simple:
A Consolidation loan allows you to make one payment every month, as opposed to making payments to many different parties. You will in effect be putting all your debt into one big pot, and making one monthly repayment, at a lower interest rate.
The loan is paid back at a lower interest rate when the debt is consolidated, because the loan that is taken out is secured against an asset. The asset acts as collateral for the institution lending the money. If you borrow the money and default on your payments, you can be forced to sell the asset to pay back the loan.
Debt consolidation can be a good way to pay off credit card debt. The interest payable on a credit card will be significantly higher than the interest on a consolidation loan. The interest payable on a consolidation loan can be up to 50 percent lower than credit card interest. The same can be said for administration charges on your various monthly expense accounts. Consolidating your debt will lead to savings on these accounts because you will only pay interest and fees on one account.
The institution that you lend the money from will also help you to structure the repayments so that they fit in with your budget. Your monthly income will have an effect on your monthly repayments each month and the total amount you will be allowed to borrow.
Loans can be secured or unsecured. A secured loan involves using your home as collateral for the loan. If you fail to make your monthly payments the bank can force the sale of your home. The advantage of a secured loan is that you will be able to lend a much larger amount than you would in the case of an unsecured loan.
An unsecured loan involves lending money without having to put up any collateral for the loan. While this protects your property from foreclosure the amount you will be able to borrow will be considerably lower. The interest rate will be higher because the bank has no security in the event that you cannot pay back the loan.
Handling Student Loan Debt
Eliminating Student Loan Debt
Ideas for Getting Rid of Debt from Your Student Loan
College is very costly. After you graduate, the pressure to pay back your student loan can be a tremendous burden. If you are living hand-to-mouth and tired of it, here is some friendly advise that may help eliminate student loan debt completely.
Get a Student Loan Consolidation.
Many lenders are happy to loan the money you must have to pay for your college expenses. However, these loans may have a high interest rate, perhaps because of no credit history or imperfect credit when you assumed your loan. And with more than one loan, that can be a burdensome problem. Consolidating your student loans can lower your interest rate and your monthly payments. It also allows one payment instead of several.
You Can Refinance Your Loan
Consolidating can save money through lower interest charges and less per month payments, but that may not be enough to really help you out. You can consider refinancing your student loan to stretch out the length of the loan. This will spread the debt over a longer period of time and thereby lower your monthly payments by as much as half. You should be very careful about this option. You could be spending a lot more over the term of your loan.
Dont Miss Making Your Payments
You want to pay down your debt for good and the most important step you can make is to pay on time every month. If you miss payments or are late, you will increase the loan debt and end up paying more in the long run. Be faithful in making payments and your debt will go away.
Consolidate All Your Student Loans Into One
Pay Less per Month by Consolidating Your Student Loans
A student loan can be a wonderful way to fund your college education and for some folks the only way, however, these loans must be paid back. When you are finished with school you may find repaying your loan is too much of a burden. If this is true for you, consider consolidating all your loans into one, or perhaps you would just like to save some of your hard earned cash.
Whats the Advantage of Loan Consolidation
Consolidating may bundle all your loans into a single package. You then have to deal with only one lender and one payment each month instead of one for each loan. Consolidation also allows you to get a lower interest rate and thereby save you a lot of money over the life of the loan.
What are the Costs of Consolidating Your Student Loans
Good news since you may lower your monthly payments significantly perhaps by as much as 60%. Regrettably, however, you could increase the amount of money you pay over time for the loan. Therefore before you decide to consolidate you should be very careful to look at the numbers (interest rate and loan terms). Take the time to learn about and compare the lenders you are considering.
These Federal Loans are Eligible for Loan Consolidation
Many federal loans have a low interest rates already. Even so, you may be able to get a lower payment by consolidating these loans. Federal loans that are typically eligible for consolidation follows:
- Stafford Loans
- Direct Loans
- Perkins Loans
- PLUS Loans
- Supplemental Loans for Students
- Federally Insured Student Loans
- National Direct Student Loans
- Loans for Disadvantaged Students
- Auxiliary Loan to Assist Students
- Health Education Assistance Loan