Poor Student No More

I had student loans from 2 private companies - Bank of America and SalllieMae, as well as federal loans.  Debt consolidation seemed like a great option for me once I graduated - to put all of my loans into one neat little package that would reduce my ever-accumulating interest and help me to pay off my loans quicker.   I could have easily jumped into the Grand Canyon of debt had I not done my research.  Here’s what you absolutely need to know about student debt consolidation:

• If you already have a not-so-great credit history, seriously reconsider consolidating.  You will probably end up paying much higher interest rates, and though your monthly payment may be lower, you’ll end up paying much more in the long run.  Focus on paying your current loans’ interest on-time every month.  Create an action plan to try to pay a little more than the minimum payment each month - this will gradually improve your credit score.  The better your credit score, the lower the interest rate you will be offered on consolidation.

• Most consolidation companies charge fees for services you can actually do on your own, like negotiating better terms on your already existing loans.  Don’t let consolidation companies scare you.  Do your research and figure out what kind of interest rate and payment plan would be best for your financial needs, then call your loan company.  You can negotiate interest rates and prioritize your payments so you pay off highest-interest loans first on your own.

• If you absolutely think you must consolidate your debt, I would recommend first going to a resource like MSN money debt consolidator.  Since you don’t have to pay anything, it’s pretty much non-biased, and you can more objectively decide if you need to consolidate.

• Don’t consolidate private and federal loans together.  This may seem obvious, but you definitely don’t want to lose the advantages that the federal loans offer.

• Make sure you understand the terms of the consolidation.  Don’t just check the “accept” box - this isn’t iTunes, it’s your financial future.  Call and speak with a representative that can help explain things to you.  Make sure you won’t end up paying more in the end.

This should help guide you in consolidation, which can be a helpful and efficient tool for getting out of debt.  But always be an informed skeptic!