The ABC’s of Student Loan Debt Consolidation

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Are all those student loans you took out about to overwhelm you? Many former students today are facing the same problem, and solving it can be tricky. Consolidating sounds like a great solution, and indeed it may be-but people carrying huge student loan debt may have a tough time consolidating it.

To effectively consolidate debt, you must borrow enough money to pay off your creditors at a rate that allows you to pay off your consolidation loan at a lower interest rate than paying off your unconsolidated loans would allow you to do. If you can’t do that, there’s no advantage to consolidating because you’re really only trading the inconvenience of writing monthly checks to several creditors for the relative convenience of writing one monthly check to one creditor.

Also, the kinds of loans available to many debt consolidators may be unavailable to you because if you’re consolidating student loans, odds are that you haven’t been out of college for very long-and most recent college grads haven’t been in the work force long enough to be able to obtain the most popular form of loan for consolidating debt, which is a home equity loan. Even if you’ve managed to buy a home, odds are that unless you live in a region of the country where real estate values are still rising, you haven’t owned your home long enough to have gained much equity.

Zero-interest credit cards are a debt consolidation option, but only if you can pay off the balance you’re borrowing before the zero-interest period runs out and the interest rate skyrockets. Two other debt-consolidation loan sources-banks and credit unions-are possible, especially if you’ve been keeping your money in the same bank or credit union for several years and avoided over drafting your account. Depending on the income your job or profession is providing you, this may be a good choice. Banks love lending to new physicians, attorneys, engineers and other highly paid professionals, even if they are just beginning their careers. Teachers and social workers, on the other hand, rank lower on most banks’ lists of desirable people to owe them money.

If you just can’t manage your student loans and other debts without help, you could also consider credit counseling. Getting professional help in managing your debt can help you change your credit behavior because professional debt managers unrelentingly require you to face up to your financial obligations. They also stop you from adding to your debt load. In exchange for consolidating your debt and working with your creditors to reduce your payments, credit counselors make you to give up your credit cards-and even if a credit counseling agency gets your payments reduced, a reduced payment plan may unfavorably impact your credit report.

If you decide to go this route, make certain that the credit counselor you use is reputable. Unfortunately, some credit counseling and debt-consolidation companies are only interested in making a quick buck at your expense. Be sure you verify certifications or third-party registrations by checking with the Association of Independent Consumer Credit Counseling Agencies or the National Foundation of Credit Counseling to see if the service you’re considering is a member.

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