Why and How Student

Loan Consolidation Works

Student loan consolidation works in the same way as any other type of loan consolidation plans. You take all of your debt that you owe to everybody and put it all under one major loan which pays off all the other ones. The goal is to reduce the amount of interest you pay by reducing the interest rate.

If this plan does not save you more than what it costs to implement it then do not do it.

An example of this would be getting a student loan consolidation loan and finding out that the amount you were charged in fees was going to cost you more than you would save in the interest rate reduction. Then it would obviously be a pointless exercise. If on the other hand, you were to make money in the process (or pay less - same thing in a way) then of course it would be the obvious choice.

How this works is like this:

Supposing all your debt combined came to, say, $50,000 and you were paying 18% interest per year. This was the average amount you paid. If you went and got the best student loan consolidation you could, and it saved you $5000 then that is the equivalent of a 10 % savings on your interest. Take this out a little further and put ALL your debt under the one roof and save $6000. Can you see where this is heading?

The savings due to consolidation of loans can be tremendous. The other serious advantage to this is the simplicity and ability to budget easily and smoothly and avoid ugly spikes in your monthly or yearly finance projections.

It smooths the whole thing out. It becomes a fixed rate and you can keep a track of the reduction very easily by looking only at one account.

The need to balance the checkbook practically disappears and you get a much better experience and satisfaction level, knowing that you are actually achieving something when at times it can seem as though you are just treading water financially.

Without student loan consolidation that may well be all you are doing.