Is consolidating your student loans a good idea non intimidating colors
When people mention debt consolidation, they are usually referring to one of two different methods.
The first is the kind you describe, where you apply for a personal loan, preferably one with a relatively low interest rate, and then use the money from that loan to pay off all your credit card balances at once.
Once an account is included in this type of program, the creditor will close the account.
Closing your credit cards will cause your credit utilization rate to increase, which can hurt credit scores.
Consider reducing other debts with the extra money, such as prepaying credit card debt, a mortgage or auto loan.
Be certain there are no prepayment fees or penalties as that can negate the positive impact of reducing the debt.
A variety of factors will determine whether it's right for you in your particular situation. The savings generated by student loan debt consolidation is a result of taking out a new loan to pay off some or all of your existing student loans. Two Kinds of Student Loans Student loans come in two forms, and this can affect your ability to consolidate: federal and private.
Lower Payment not Lower Loan Amounts It is important to understand that student loan debt consolidation can reduce your monthly payment, but it does not reduce the amount of money you borrowed. Student loan debt consolidation can be a financial management tool for you, or a financial crisis management tool. If you are facing financial difficulty with current expenses outstripping income, consolidating loans and reducing monthly payments can ease your burden.
You are combining some or all of your student loans and refinancing that amount. If interest rates are lower and other loan terms are the same, you should pay less in total interest, and this can reduce the total amount of principal and interest you pay back. If you extend the period in which you are repaying the loan, you might also be paying more than you originally would have for unconsolidated loans. Excessive credit card debt is often handled in just this way.
If the debt consolidation company fails to make a payment on time, the late payment will be reflected on your credit report.
Even one late payment will have a negative impact on your credit scores.