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The Advantages of Consolidating Your Student Loans

If you are like me, you may have several outstanding student loans. Once I finished college, I was faced with making payments on each loan separately and the total of the payments was a staggering amount. Luckily, I found out that I could consolidate all of these loans into one loan and make just one monthly payment on them.

In addition to having just one payment instead of several every month, you can also get the loan at a much lower interest rate than the loans were originally financed at and this can greatly reduce the total cost you pay in the long run. Many companies will try to get your business so they will offer you low rates to refinance your student loans with them.

You can usually get even lower rates if you will agree to allow the company to automatically deduct the loan payment from your checking account each month. In addition, if you make all of your payments by the due date each month for a specified number of months, the company will usually lower your interest rate even more.

Lower interest rates on your student loans will not only reduce your total payment amount, it can also improve your credit rating with the credit bureaus. Since you will owe a lesser amount (because of the reduced rates), it will pull less at your credit score when applying for other loans. Credit bureaus always consider how many debts you owe when formulating your score. Part of what goes into this is the total amount owed on all of your outstanding loans. If your loan amount is reduced because of a lower interest rate, your credit score will be higher. In addition, even though you will owe more with a consolidation loan than you would several smaller single loans, it will be only one loan pulling at your rating instead of several. This will be in your favor because the number of loans you have also figures into your score.

If you take care to make the payments on your lower-interest rate loan on time, other companies you apply for loans with will be very likely to give you another low interest loan. Low interest loans are always easier to pay off early because the payments are lower than the ones on high interest loans.

Right now, rates are fairly low on consolidation loans used to combine several student loans into one payment. With the economy getting worse, it might be a very good time for you to make the decision to consolidate. It is not a good time to get yourself so far in debt that you can't find your way back. Consolidating your loans will enable you to pay your loan off faster, obtain lower payments, and secure your good credit rating.

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