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Advice for Deciding When to Consolidate Student Debt

When consolidating student debt, the loans principal won’t be modified. Nevertheless, you’ll be able to save thousands of dollars on interests and reduce your monthly payments by extending the loans length. Moreover, consolidating at a fixed interest rate will let you keep the same monthly installment amount through the whole life of the consolidation loan.

That being said, consolidating student debt is not always worth the trouble. Only if you can obtain a substantial reduction on your debt or if you can make your monthly payments more affordable you can say that consolidating student loans is appealing enough. In order to determine this you may want to follow the following tips:

Consolidating during the grace period

Be especially careful not to consolidate during the initial grace period unless the consolidation loan includes another grace period or you can do without it, because otherwise you will have to start paying your debt right away. Grace periods usually last between 4 months and a year. During this period, the borrower is not required to start paying off the loan. The main reason for this benefit is that the graduated student might need such a time to find a job and get used to a new lifestyle.

Interest Rates

If you can get a lower interest rate than the average of all your outstanding loans, that would be great. However, you’ll probably get an interest rate just a bit higher than the average interest rate of all your student loans. The reason why you would want to consider consolidating even with a higher interest rate is that the length of your loan will be extended and the loan installments reduced. Besides, the interest rate will be locked so if market conditions worsen you would still be paying the same amount, as opposed to federal student loans which rates

fluctuate with the market.

Contact government agency for cancellation
Prior to consolidating your federal student loans or other government loan, you might want to contact the government agency that issued the loan. It is possible to fully cancel the loan without reimbursing the money if certain requirements are met. Since you have nothing to loose, before searching for a lender to consolidate your student debt, make sure you can’t get the government to condone the whole or part of the debt. After consolidating, you won’t be able to apply for this kind of government forgiveness.

Set aside special loan programs

There are certain loans that you might want to maintain with its original terms. There are loans where the government pays for the interest and you only pay for the principal, others where the loan can be renewed upon cancellation or even before. If you consolidate this kind of loans with the rest of them you’ll loose this special attributes. So make sure you won’t have use for them before rushing in. There is always time for consolidating, so you might as well make a conscious decision on this matter.

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