Consolidating loans advice
Fixed interest rates stay the same for the life of the loan.
You’re more likely to have the same monthly payment each month.
And depending on your lender, you may need to meet a minimum balance.
(The Federal Loan Consolidation Program doesn’t require a minimum.) If short-term savings are your priority, consolidation is worth a look.
Consolidation will allow you to switch from a variable rate to the new fixed rate. A variable rate can save you money if you have strong credit – and if interest rates don’t rise significantly.
If you plan to repay loans over time, and you’d rather have a steady interest rate than a fluctuating one, a fixed rate may work best for you. For long-term savings, it’s best to lock in a fixed rate when interest rates are low. The Federal Direct Consolidation Loans website offers an online calculator to compare interest rates. If you have private loans, they won’t be covered under the Bipartisan Student Loan Certainty Act, but you can still lower your interest rate through consolidation.
Private student loans base interest rates on your credit score. All consolidation paperwork must be processed and approved in those six months for the in-school rate.
This means if you’ve had a jump in your credit rating, you may be in a good position to consolidate private loans. Read more: Learn how to check your credit report and score, absolutely free There’s a window of time, after you graduate but before your grace period ends, when you can still get the lower in-school interest rate. And once the consolidation goes through, you enter repayment – even if you’re still in the grace period.
If your monthly payments are manageable, it may be tempting to consolidate out of convenience. Once you near the end of your repayment – once you have a few thousand dollars or a couple more years to go – it’s usually not worth it to consolidate.Loan consolidation may offer just the wiggle room you need, however, if your original loans are more rigid. If you took out federal loans before 2013, you may have one of two types of interest rates: variable or fixed.Variable interest rates can adjust each month, based on the interest rates available at the time.If your life circumstances are changing, you may want to adapt your loan repayment plan to match.For instance, if you’re on a ten-year repayment plan with your original loans, consolidation could get you an extension or offer the income-contingent payback plan.