The Practical Guide to Consolidating Your Student Loans

Student Loan Repayment – How to Pay for College 

“No loan is free. The costs in your loan somewhere, maybe rolled into the amount to be refinanced or even coming at a higher interest rate.” —Barbara Corcoran, Businesswoman

College rates are astronomically high, and they are only continuing to grow. Whether you are in college, preparing for college, or have recently completed your college education, you are well aware of how expensive paying for a higher education can be these days.

That brings us to the questions so many have… should I consolidate student loans?

Unfortunately, not everyone can get a perfect score on the SAT or be the number one recruited pitcher coming out of high school. For the rest of us normal people, we will have to pay to attend a college or university.  This can take a toll on personal finance.

Why does this all matter?

Debt consolidation may be a viable option to reduce the hassle of paying back your student loans.

Paying For College

“I had three jobs in college. The best day of my life was when I paid off my student loans, on my own.” —Jessica Seinfeld, Author

Many people go to great lengths to graduate with as little to no debt as possible.

Universities often hire professionals to assist students in finding ways to alleviate the burden of college costs.  Many try to find answers under student loan forgiveness.

A small portion of college students actually visits these offices, but for those who do, scholarships and internships may await.

Considerations for Active Students — Scholarships 

According to the College Loan Corporation, scholarships are the best way to make college more affordable.

This corporation also includes such methods as working part time in the summer, applying to multiple schools to find the best possible deals on higher education, and using Federal Work-Study as ways to help save for college.

If you are looking to attain a scholarship, the best method is to visit the representative at your local University or even your high school career center. Some general tips include the following:

  • Get active in your community
  • Use a scholarship search engine like com or fastweb
  • Meet the scholarship sponsor’s needs
  • Fill out every question (even the *optional* ones)
  • Cast a large net and apply to every eligible scholarship
  • Organize your scholarships by odds of achievement
  • Search for essay contests as lazier students will not apply to these
  • Look, dress, and act professional

Considerations for Active Students — Don’t Spend So Much

For many people, it is impossible to graduate from college without some form of student loan debt and for those who realize this during their college career, this could mean cutting back on a few University luxury items.

As students are choosing their meal plans or living situations, the University will make it easier to pick a blocked, simple option. These are organized, but they are not cheap. This is a common mistake for freshman, but the real issue is that not many people learn any better their following years.

Find a less expensive apartment off-campus after your first year (the first year is meant to help bond, so it’s not so bad in the beginning to live on campus). Pick a low-end meal plan for those days when you have to eat on campus.

Learn to cook a few simple meals at home and avoid paying thousands back in the future for cheeseburgers and buffets that only hurt your health and mind.

 

The Issue with Student Loans 

“Don’t dwell on what went wrong. Instead, focus on what to do next.” —Denis Waitley, Consultant

There is a reason that politicians have discussed student loans and the rising costs of higher education so heavily. Student loans are a growing concern.

As the price of a higher education rises, so does the amount of loans that citizens have to take out in order to get their degrees.

The US News reports, “An increasing number of traditional-age college graduates are struggling under the weight of student debt. This trend alone suggests that we need serious policy reform to address ever-rising college costs that are consuming more and more of young Americans’ future incomes.”

Student Loan Hero states that American citizens alone have racked up over a trillion dollars worth of student loan debt. There are over 43 million Americans that currently have are in debt because of their student loans.

But wait, there’s more…

For someone who is between the ages of twenty and thirty, the average payment is $351 per month. That adds up to about $4,200 per year.

This can be compared to the median amount that an American household makes each year, which according the US Census Bureau is about $53,000. That means that on average, each individual’s student loan debt comprises about 8 percent of the median income for an American household.

Having the loan show on your credit report and affect your credit score, so managing debt can become touchy.

What That Means for Americans

“Blessed are the young for they shall inherit the national debt.” —President Herbert Hoover

College is supposed to represent a budding independence. For many, it is the first time in a person’s life when they get to set their own schedule and be their own person without the constant support of their parents.

They are allowed to stay up late, order pizzas, or even explore alternative lifestyles.

Upon graduating, a person is supposed to be well equipped with the tools necessary to be successful in a career and be well on his or her way to becoming his or her own person. Student loan debt is something that stands in the way of this process.

Rather than move forward, they are left to dwell on their past, many without the life skills of saving or managing their money.

Since just graduating, most don’t have a home or any real equity built up to use as collateral to dissolve their student debts.

Finding a place to live and a new career is a daunting enough challenge, but with the added expense of student loan payments, it becomes overwhelming for many recent graduates. Consider those who find a first-time, relatively low-paying job.

They’ll need a new everything…wardrobe, place to live, and maybe even a vehicle.

When trying to fit into this new lifestyle, the choice falls down to student loan payments. Many will drop their payments to the lowest possible figure, meaning they will pay thousands more over a lifetime in order to survive today.

Rather than moving out on their own, many Americans are forced to move back in with their parents in order to ensure that they can pay off their debts before they are capable to move out on their own.

Student loan debts not only cost many Americans large sums of money, but in doing so, they can inhibit people from becoming completely independent. After moving back in with the parents, perhaps falling back into other old habits, these individuals may end up staying home longer than they planned because it’s simply easier.

A Necessary Evil (?) 

“I would get my student loans, get money, register, and never really go. It was a system I thought would somehow pan out.” —Ray Romano, Actor

While student loan debts offer many problems, it is almost a necessary evil within the current economic system. The best option is to save as much as possible and take scholarships when you can, but that is often not enough as these clichés are truths that many overlook.

In today’s society, it is extremely difficult to advance into new positions without some sort of degree. On the other hand, without the loans, individuals could move further in their life’s goals, such as getting married or starting a family.

It’s a vicious cycle leaving many students stuck at the fork in the road.

However, there are methods that could make paying off student loans a more manageable process. One of these methods is to consolidate your student loan debt.

Consolidation Explained in Simpler Terms 

It is easy to get wrapped up in a lot of different jargon that people throw around. In many cases, we tend to regularly use words that we are not even really sure of the meaning.

“Consolidating student loans” is a perfect example of one of those instances, as it seems simple, but can actually be quite complicated.

According to Investopedia, to “consolidate a loan” is to simply take multiple debts and those that collaboration into a single strand of payment. This loan can actually wind up providing a more manageable interest rate.

If used properly, this consolidation of debt can be an effective means of helping to pay student loans, especially if one has acquired additional debts after graduation.

Is Debt Consolidation Foolproof?

“A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools.” —Douglas Adams, Author

When looking at debt consolidation, it can seem like it is universally the best option. If there is only one loan to pay off, then it would appear that the interest rates would be lower and that it would be much more manageable over time.

Generally speaking, however, when the thought of debt consolidating arises to the surface, many individuals are looking to consolidate multiple debts.

While it’s a possibility that debt consolidation great for many, it may not universally be the best option. According to financial expert, Dave Ramsey, there are certain pitfalls to debt consolidation to consider.

For example, debt consolidation can be a roundabout way of avoiding the problem at hand. At surface value, this consolidation can appear to eliminate the debt that has accrued, but the debt still remains.

Changes need to be made in order to ensure that the debt is paid off. Therefore, debt consolidation is more mental than anything else. Much like a fad diet, things will get worse if the mentality is not also changed.

Circling back, Investopedia goes on to point out that in some instances, the consolidated debt will offer a lower monthly payment and interest rate extended over a longer period of time.

Bottom line?

So, while it may appear that the debt is reduced due to the debt consolidation, you could end up paying more because the interest is growing while you are paying off the debt.

Use a free debt calculator to get started and make sure you’re not simply pushing the problem away to solve in the future. Find the source and eliminate it.

Picking The Best Option For You  

“Credit is an ‘I Love Debt’ Score.” —Dave Ramsey, Financial Consultant

When researching the process of debt consolidation, there are some sources that make it seem like consolidating your debt is the only viable option. Other sources will encourage you to simply steer away from the process by any means necessary.

I can’t emphasize this enough:

It is important to understand that debt consolidation does not eliminate the debts that have been built up.

It is a helpful aid that—when used properly—can make life easier. A student loan calculator can be used to discover if debt consolidation is the right choice for you and how much money you could potentially save. Consider the following example when conducting your personal calculations.

Imagine you’ve accumulated the following:

  • $25,000 in Student Loans
  • $3,500 in Credit Card Debt
  • $2,000 in Second Credit Card Debt

To keep these numbers round, let’s say your credit cards charge 20 percent after the introductory period, which is usually 0 percent.

Now let’s now say your bank offers a personal loan to you of somewhere between $10,000 and $25,000 with a 6 percent interest rate.

This seems like a no-brainer, as 6 percent is much better than 20 percent, but this is where other factors enter the equation.

One example may be to take the $10,000 personal loan (or less) at 6 percent to pay off the credit cards once and for all, and continue to pay minimal payments on the student loans.

Another option would be to take the full $25,000 and pay as much as possible to the total. Some people would take the higher loan, pay off the credit cards, and then use the excess to pay back the big loan over time.

Nerdwallet writes, “Taking out a personal loan is not the only way to simplify your finances, however, and it may be more expensive than other options. If you decide to take out a debt consolidation loan, look closely at the fees a lender will charge, what kind of support it offers (such as financial education or payment flexibility) and whether you can use a co-signer to get a lower interest rate.”

Understanding Your Needs 

“Failing to plan is planning to fail.” —Benjamin Franklin 

The problem with financial advice is that there are so many options. Is it best to get a personal loan, refinance, consolidate, borrow, or pay the minimal amount in hopes of a better job opportunity in the near future?

It’s really up to you and your particular situation.

If you’re reading this article, you’re in the right place. You’re doing your homework. You’re searching for answers.

Explore all of your options. Look for consolidation or refinance options that are lower than your current interest rates. Speak with your bank and find out what rates they can give you once your credit score is at it’s best.

Find a debt calculator and enter in your specific information.

The most important step, after doing your research, is to stick to your plan. Find the solution that best works for you and live rigorously within the guidelines you need to get out of student debt.

By the way…

This means cutting expenses. This means losing some of those bad monetary habits.

Find tools that work and calculate the realities of your life, such as necessary vacations or expenses that you need to help motivate you the majority of the time. Live within your plan and chip away the debt day by day.

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