Debt consolidation is often a tool used to restructure both consumer loans as well as Federal student loan repayment.
Similar to other debt consolidation, student debt consolidation means that you are going to take all the student loans that you have and consider rolling them into one student loan. The reason to do this is to consolidate and get a lower interest rate with a smaller monthly payment.
If you are considering debt consolidation for any type of loans, including your student loans, make sure you do your research and ask appropriate questions. Start by listing out the student loans you currently have, the amount left on each loan and the interest rate you are paying. Make a notation if the interest rate fluctuates or climbs over the years. Do this with your other loans.
Federal Student Loan Consolidation
Student loans have to be looked at separate from your other debt. They cannot be consolidated with any other loan. If you have Federal Student loans you may have a variable interest rate on these educational loans. Make sure you understand what your loans have.
The Federal Government offers a Direct Consolidation Loan that is fixed for the life of the loan. The loans new rate is based on the loans you have. It is figured on the weighted average interest rate of all the loans you currently have, and the number is rounded to the next one-eighth of one percent. The rate can’t be more than 8.25 percent.
For more information you can go to the federal student loan website at: http://www.ed.gov/about/offices/list/fsa/index.html. Or you can also check out: http://www.loanconsolidation.ed.gov/. This site has calculators and lots of information on how to get a loan, and if consolidating your student loans is a good idea.
Consumer Loan Consolidation – Unsecured
An unsecured loan can be used to consolidate credit card debt, medical liabilities or other loans. Personal loans are offered under many names. They are sometimes called signature loans, or consumer loans. Generally they are for $5000 or less.
Different lending institutions may call them different things, but the end result is that they are unsecured loans. This is a loan granted for personal use that is not tied to any asset or thing. Getting the loan is based on your credit report and your ability to make payments on the loan and pay it back during the negotiated term.
There is information and calculators available to help you figure out if consolidating debt is right for you. One place for help is www.moneycentral.msn.com. This site offers debt calculators that will help you figure out the best way to structure payments by time and interest rate. There are also ways to help you figure out your debt ratio. The site includes all sorts of tips and tools to help you make the best decision when it comes to debt consolidation.
Consumer Loan Consolidation – Secured
A secured loan for consolidation means that the loan is guaranteed by some type of asset. This asset can be savings accounts or CDs, or personal property like a car, boat or other asset. The secured credit can also be taken on your personal residence by adding an amount to the first mortgage or refinancing to get cash out of the equity. It can also come in the form of a home equity line of credit or second mortgage.
Secured credit will usually provide a much better interest rate and a longer time frame to pay the loan back. This makes the most impact in a debt consolidation effort.
Credit Score Management
No matter what type of loan you choose for debt consolidation, you will want to manage your credit scores and your credit report. This is important because any financial institution will base granting the loan and the interest percentage on how good your scores are.
You should request your credit reports at least annually and clear any discrepancies as soon as possible. Once you see a mistake on the credit report it will generally take thirty days or more to clear the mistake from the report.
There are many sites that offer free credit reports. Some sites will even provide free FICA scores, but be careful. Sometimes these services are free only for a limited amount of time. The services may start charging within a few days of getting the report for services like credit protection. One of the websites that provides a truly free report once a year is: www.annualcreditreport.com. This site also allows you to submit problems online.