Consolidating Student Loans: the Pros and Cons

Budget101 Discussion List Archives General Budget & Finance Consolidating Student Loans: the Pros and Cons

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    • #345522
      FrankM

      When it comes to debt management, there is much debate over the efficacy of debt consolidation. For some people, there’s great success, while others have a harder time once they see the price tag on their consolidated loan.

      However, the question remains: does debt consolidation work, or is it just a way to feign financial stability?

      To answer that question, here are some pros and cons for you to weigh if you’re contemplating debt consolidation:

      Pros:
      Rather than having to pay on several different credit cards, loans or whatever else, you’ll only be paying on your consolidation loan, meaning only one monthly payment to worry about. This not only helps you keep your finances organized, it also saves you money in the long run.

      Since you’ll have more time to pay off your consolidation than you would any credit cards or other loans, you’ll have more time to build up your credit score. Although you’ll be paying monthly for a little longer, you’ll be securing a better financial future for yourself.
      Instead of having multiple credit cards or other outstanding debts collecting interest all over town, debt consolidation only requires you to pay one interest rate on your loan. This starts saving you money almost immediately, and over time, allows you to get a better handle on your finances.

      There are plenty of other benefits to choosing debt consolidation, but of the many reasons to do it, there are an equal amount of reasons not to. Although the pros listed above are promising, there are definitely some cons that go along with it.

      Cons:
      Having more time to pay off your consolidation loan and improve your credit score may sound like a great idea, but it can potentially cost you more money in the long run. Depending on how long it takes you to pay, you can run the risk of racking up quite the bill.

      Debt consolidation, when done correctly, can do great things for you financially. However, it really is only the first step in a long series of steps you have to take to actually get out of debt.

      Similarly, debt consolidation doesn’t get you out of debt. In fact, all it really does is move your debts to a different place, which is one of the main criticisms it receives. It does make payments and such a little more manageable, but in all reality, it doesn’t do very much.

      As you can see, there is a very fervent, very ongoing debate about whether or not debt consolidation works or not. But at the end of the day, the decision really is up to you. You can read all the articles in the world, but only you can decide if debt consolidation is worth it.

      But if you’re still a little skeptical, definitely consider a consultation with a financial advisor or banker and they’ll be able to sort you out.

    • #459464
      oneeyedkat

      Thanks for this great information. I know you are talking about student loans but I wanted to share about debt consolidation in general. I had a student loan that I finally had taken care of and that took forever.

      Close to 15 years. Now I no longer have that loan on me.
      I got a debt consolidation loan with my current debt which was credit cards. I now will be paying back what I borrowed and then in interest what I borrowed.

      It like a payday loan except over a 5 year period. Live and learn. I would say watch out for debt consolidation loans.

      Get rid of any credit cards you have. That is what I did. What out for places that over debt management.

      You still will be paying back your debt at the same price just at the debt management way. There are other companies that offer ways that seem easy but actually are not and make you wonder if it is worth the trouble. I decided to take on my creditors and talk with them about my interest rates one card at a time.

      How this will work I don’t know. I just want to do the right thing and the way that makes me feel comfortable in my own skin. At this point, the people who I took the debt consolidation loan out with are willing to refinance the loan to make lower payments.

      I may do it because I need some money to live on. I got myself in this mess and I need to get myself out of this mess.
      For those with student loans pay them off as quickly as possible. Don’t let them do into default.

      If you do, don’t work with the creditor collectors that the loan is sent to, call the Department of Education and work with them. That is what I did. They worked with me.

      FrankM thank you for writing this great post!

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Budget101 Discussion List Archives General Budget & Finance Consolidating Student Loans: the Pros and Cons