The Consolidation of Private Student Loans: A How-To Guide

The consolidation of private student loans will save you money both through loan settlement and refinancing. Further, you will only have one monthly payment to manage; reducing the risk you will miss payments. Government loan consolidation programs are available if you have federal student loans. For private loans, though, you should seek private lender options.

Determine Your Total Debt

The first thing you will need to do is determine how much debt you will be looking to consolidate. If you have taken several loans to pay for various semesters at college, you may consolidate these. You may also consolidate loans from undergraduate and graduate programs. Finally, any revolving debt or other small loans you have for college expenses should be considered. There is no limit to the type of or amount of debt you can consolidate through most private programs.

Order Your Interest Rates

You should only consolidate loans that will have a change to be paid off at a lower rate. Consolidating a loan you are paying 6% interest on for one you are paying 8% interest on does not make financial sense. Place all of your debt in order according to interest rate. Determine a rate that would allow you to save money on your interest payments over time if all of the debt was consolidated. It may be wise to leave one or two loans out of the consolidation if they are currently paid off at low interest rates.

Seek a New Loan

Approach lenders to seek a consolidation loan. You should do this at a time when your credit is very high and your income is appropriate. Since you are seeking a loan at a lower rate than the ones you already have, you do not want to take a new loan when your credit is low. You may go to a company specializing in consolidation. However, it is also possible to approach the same lender who provided you with your existing debt. The lender may be willing to work with you to consolidate if you show you are worthy of the consideration.

Negotiate with Your Lenders

Your current loans will be settled with a lump-sum payment. While it is possible to pay the full amount you owe, you should also attempt to negotiate a lower rate. Lenders receiving a lump sum may find the incentive to reduce the total debt you owe. They will not have to worry about inflation on the principal over time. Additionally, you are offering these lenders the ultimate assurance against default: an immediate payment in full. Ask what they are willing to give you in return.

Watch Your Credit

You should know that modifying loans will drop your credit. Reaching a positive agreement with your existing lenders  may be able to stop some of the negative effects. For example, if you pay off the loan in full plus the prepayment penalty, your lender may be willing to omit the modification from your credit report. Consolidation or modification of any type should only be done if you are not currently seeking additional loans, however, so you are not discriminated against for the action.

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