The idea of graduating college seems like a nightmare for those that have a huge amount of student loan debt. Although they have followed their dreams and now have the degrees they need to pursue their career, many are overwhelmed with the idea of paying back huge amounts of money for their student loans. What many don’t understand is there are options available to reduce the amount of money they have to repay.
Most students in college have to apply for and accept multiple loans to finance their education. Although these loans are not due until their education is completed or students have stopped going to school, it takes many years after graduation for most students to repay all their student loans. As students begin to look at the number of loans they have to pay and the amount in interest that has to be paid, many start to panic. They don’t always realize the benefits of consolidating all their student loans.
Consolidating student loans simply means students will combine all federal student loans into one loan. There are millions of people that find relief in doing this. Instead of having to pay multiple payments to different companies on a shoestring budget, young professionals can make one payment and save thousands of dollars in interest. What surprises these individuals the most are the other ways they save money with student loan consolidation.
Ways to Save by Consolidating
As people think about consolidating their student loans, they don’t always realize they will save money in multiple ways.
Credit Scores Love Consolidated Loans- Many students haven’t paid a lot of attention to what their student loan debt does to their credit. Many are surprised that they don’t have good or excellent credit when they graduate. With little to no income, huge amounts of debts will negatively affect someone’s credit score. Once the student loans have been combined, there is only one student loan payment reflected and the payment is usually much lower than all the other payments combined.
Consolidated Loans Give More Buying Power- With only one student loan reflected on a credit report, most young professionals will be able to borrow more money to pay for their first home or car. They will have a better credit score and that lowers the amount of interest they will have to pay on any future loans they get. Maintaining a low debt to income ratio will give people access to more credit when and if they need it at a reasonable rate.
Graduating with Less Means Accumulating Less- When people graduate with a huge amount of student loan debt, they have less disposable money. To make up for less disposable money, most people turn to credit cards and amass a huge amount of debt along with their student loan debt. Instead of starting a huge cycle of debt, students can consolidate and start their life with one lower loan payment and have more disposable cash available to them.
New Loan, Lower Rates- It’s no secret that student loans have horrible interest rates. Instead of being locked into those higher rates, those that consolidate will often be locked into a lower interest rate, saving thousands of dollars over the life of their loan.
There are many ways that consolidation loans save young professionals money. The power that is put into the hands of those that consolidate should be handled carefully and responsibly. It’s another tool that can help people stay on the path to financial health and sanity.