Consolidating Student Loans - It's Your Choice

Consolidating student loans exist to amalgamate monthly payments to creditors. A single loan pays off the entirety of your debts to other financial services, such as personal loans and credit cards. A singular monthly payment is then paid towards the consolidation loan, reducing the number and quantity of debt payments to be made each month.

A student loan debt consolidation loan appeals to individuals who are struggling with high levels of debt, or are perhaps facing bankruptcy. This is because their existing payments are reduced to a simpler and cheaper monthly payment, reducing the stress that frequently couples the juggling of numerous and costly financial payments.

However, while this will alleviate the monthly strain, a consolidation loan does not come without some tradeoffs. Consolidating student loans into one loan with lower monthly payments means that while monthly outgoings are lowered, the consumer will be paying back a larger overall amount over a longer period. For example, some consumers have reported payback periods extending to 10, 15 and sometimes 25 years longer than the payback period for the previous debts.

So consumers lowering their financial monthly payments through the use of a consolidation loan pay back more and over a longer period. Are there any benefits that outweigh this trade off?

For some consumers, the reduction of monthly stress paying back financial debts is enough justification for them to consolidate. In order to acquire the use of  a student loan consolidating services, you must be a home owner, or be making mortgage repayments on a property. The unsecured financial debt which came in the form of student loans, credit cards, store cards and other such credit services; is then secured against the value of the property. Some financial institutions will consolidate the debt into the mortgage value, so that the loan repayments are made with the mortgage payment.

While consolidation reduces the amount paid out monthly, risks in the face of bankruptcy are greater. In the event that you are unable to make repayments on credit card or other unsecured debts, it is likely that you will receive a negative mark on your credit rating and will have to negotiate a payback agreement. Fail to make payments on your consolidation loan secured against the equity of your property, and you may loose your home.

Frequently, consolidation loan companies focus their advertising efforts on individuals facing bankruptcy or extreme financial difficulty, and peddle their financial services as a quick fix product that will make debt manageable. As a consumer you should proceed with caution; these companies stand to benefit from your custom, and may provide unbiased advice with regards as to whether or not you should consolidate.

Whether or not to consolidate comes down to a simple trade-off, are you willing to pay back a greater amount of debt for a longer period of time to reduce your monthly payments?

The decision of whether or not to consolidate should be made only once independent counseling services have been sought. These counseling services are available to provide impartial advice on how best to improve your debt management, unlike the loan companies that profit from your acquisition of loans. In fact, movements in Congress have been made to ensure that debt counseling is made compulsory prior to consolidation.

There are other options available for consumers wishing to manage their debt more efficiently. For example, non-profit credit counseling organizations are available to provide advisory services, and can enable you to prepare and manage budgets that will help you to manage your debt. However, make sure to contact a counseling service that is non-profit and is able to provide you with impartial advice on consolidating student loans.