This is a guest post from David Chen. David is a blogger at MillennialPersonalFinance.com. David loves a good side hustle, sushi, and CNBC. David hates student debt and frozen foods. David is working to build up his blog following in 2017.
When I realized I was paying higher interest on my student loans than I needed to, I decided to take the road to refinancing. If I didn’t, I’d have been paying on my remaining balance in student loan debt much longer than necessary. In my case, I had multiple student loans and financed them into a single loan with a lower overall interest rate. Before I did this, I had to learn how a student debt refinance and consolidation worked so I could make the best decisions. The following information is what I found.
Is Consolidation a Good Idea?
There are certainly drawbacks to consolidation, but it highly depends on the type of loan you have. You have either a federal or private student loan. If you have a federal loan, the amount of time you have to pay back the loan is set and the interest rate can’t exceed a certain percentage. You are also not penalized if you decide to pay back the loan in advance.
If you have private loans, the lender set the terms when you acquired them. This means variable interest rates and fees, depending on the lender. You don’t get the benefits of federal consolidation when you have private loans. Nonetheless, there are some benefits to consolidating as a part of refinancing:
- You only have to make one payment because there is only one loan.
- The interest rate is fixed, so you don’t have to deal with variable rate loans that keep changing on you.
- You can extend the repayment period if you want to, but you can use consolidation to shrink the size of the debt for faster repayment.
Why You Might Not Want to Consolidate or Refinance read more…
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