When you consolidate federal student loans, you replace all of your existing federal student loans with one easy to manage loan. Why would you want to do this? Here are four reasons why you will want to consolidate your federal student loans.
If you have several federal student loans, each loan requires you to make monthly payments that, when added up, can be a heavy monthly burden. By consolidating your federal student loans into one loan, your monthly payment will be much less. That makes your debt much more manageable at a time when you probably need your money the most.
Also, by lumping all of your federal student loans into one loan, you simplify the repayment process. It's much easier keeping track of one monthly payment with one lender instead of keeping track of multiple loans with multiple lenders, all with different due dates.
Another benefit of consolidating is you can get a lower interest rate. This helps offset the cost of lowering your monthly payments and extending your loan. A lower interest rate over that extended period of time can add up to significant savings.
When you consolidate federal student loans, the consolidation loan pays off your outstanding federal student loans. So by consolidating, you have paid off several loans at one time - either on time or early. That improves your credit score.
Why is that important? If you decide to get a mortgage, a car loan or any other type of loan for that matter, you will receive a lower interest rate. And that saves you money.
In the case of a mortgage, it can save you thousands (or tens of thousands) of dollars.
When you apply for a mortgage, lenders look at your current monthly debt payment and compare it to your income. If your student loan payments are greater than 8% of your income, you may not be eligible for a mortgage. By consolidating your federal student loans, you can reduce your monthly payments so that you meet the 8% (or less) criterion and get that mortgage you're after.
When you consolidate federal student loans, you lower your monthly payments, make life easier by dealing with only one loan instead of several, get a lower interest rate and improve your credit score. All of these benefits to you make this financial step a very smart one.
Thomas Erikson is co-founder of www.your-debt-consolidation-loan.com which provides student loan consolidation information and solutions. |
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