Student Loan Consolidation: Overcoming Your Loan Debt Crisis

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Student loan consolidation

Student loan debt is a huge problem. We are sure that the student loan crisis we’re in is no news to you, as the student loan debt for the U.S. citizens is at a massive $1.6 trillion in 2020 and increasing. Right now, the loan has exceeded all our car loans and even our credit card debt. One of the ways to overcome the debt crisis is through student loan consolidation.

But even with that, you have to know whether consolidating or refinancing your student loans is the best decision (we’ll get to that later on). Now, check this: for every five borrowers, one had a loan debt over $50,000, and those with over $100,000 is 5.6%. That’s just bad! 

Some students have these enormous tuition bills because some change majors, enrol in a school that doesn’t accept credits, or quit and restart school. Also, many students don’t realize the seriousness of the money they owe at the time. It turns out they usually think it’s “free money” for some reason. Due to that “free money” notion, they use the student loans to live lavishly. 

And when the loans get into deferment, and with interest accumulating over time, small loan debts can speedily become huge.

In this guide, we’ll show you how to overcome your debt crisis through student loan consolidation programs. 

If you’re ready, let’s get into it.

How To Overcome Your Debt Crisis In 3 Stages Using Student Loan Consolidation

One of the most popular reasons students have massive loan debts is they pursue doctoral, graduate, or professional degrees.

Averagely, a student who completes dental school can owe $241,097, according to the American Dental Association. Likewise, according to the American Bar Association, a student who graduated from law school can have $125,000 in debt. 

We know statistics can be boring. But we needed to present this information before we move on to the next segment. The three stages to getting rid of your loans are:

  • Stage 1: Begin your journey with your repayment backpack
  • Stage 2: Come up with a strategic plan and implement them
  • Stage 3: Make extra payments on your loan debts

Stage 1: Begin With Your Loan Repayment

Student loan debts can indeed make life complicated and unbearable, especially when the loan debt is hugely overwhelming. Begin clearing your debt little by little. Use the following first steps to help you come out of debt once and for all.

Have A Deeper Understanding Of Your Loan Debt

It doesn’t matter how much your loan is; you need to take a closer look and understand it correctly. How do you do this? First, get to know who you owe, and what your loan debt is. Of course, it can be complicated when you have massive loan debt.

Secondly, you need to know the details and conditions of your loans. That means, find out whether you qualify for an income-based repayment plan. If you’re not able to pay back your loans because of any hardships, determine which loans qualify for an unemployment deferment or financial hardship deferment. 

Also, you should find out the rates for every loan you have. It will help you decide whether student loan consolidation programs are the best choice or not. With the consolidation, you can get low interests.

You can also find out if paying extra on your debt is the best option, that is, if you had that option, or if you should save and later pay the excess on your loan debt. We will dive deeper into student loan consolidation programs soon to help you get a clearer idea.

Take Full Advantage Of Your Grace Period

You may get a grace period, especially federal student loans, which award you a six months grace period (if you have Perkins Loans, you can get nine months). You can also acquire the grace period when you stop college.

When you graduate, you’ll get some time off before you begin your repayments. During that time, do as much research as you can on your loan debts and every option you have.

Avoid the temptation of ignoring that you have a debt to pay. If you acquire a grace period, that’s when you put your research, resources, and game plan together. And if possible, begin your payments. Besides, you’ll make payments on your debts anyway. You can’t neglect or postpone it forever. 

For example, if you’re going to repay $300 each month after the grace period, begin your payments now on that amount. Not only will you get ahead by $1,800 ($300 x 6), you’ll also be accustomed to paying $300 every month.

Have A Payment Plan For Your Student Loan

Student loan consolidation

If you have a federal student loan, you can consider an IBR plan to decrease the payment you make each month. It can help you manage your loan repayments if your student loan is enormous.

According to the Education Department, you can be eligible for the IBR plan if your overall loan debt is more than the salary you make each year. If you make your payments each month, your loans may be forgiven after a particular time, that is, if you follow the terms and conditions of your creditor. 

You can get your loans forgiven after 20 or 25 years, and it relies on the amount of loan debt and your creditor. You can use the FinAid loan calculator to project your loan payments each month. That is, if you need assistance with your loan repayments. You can also contact us on 800-881-0687, and we will help you make an informed decision and get rid of your loan debts. 

Consider Whether Student Loan Consolidation Is The Right Option

Refinancing or consolidating your student loans is one best way of managing and getting rid of your debt. One way to manage your debt is by reducing your interest rate. With student loan consolidation, you can track how things are going quickly, since you’ve joined many loans into one payment. With that, it’s rarely impossible to miss your payments each month and avoid late fees and any credit problems.

However, we recommend that you should not consolidate your private loans with your federal loans. Instead, consolidate your loans separately, that is, move your loans to a federal consolidation loan and a private consolidation loan (refinancing). But remember that the interest rate may not get lower. It depends on your current interest rates and credit score.

Now, you can lose some benefits as a borrower when you consolidate your loans. You can lose benefits such as deferments, loan forgiveness, or IBR plans.

Student loan consolidation programs are a crucial point in this guide. So we will take a detailed look to help you understand and make an informed decision. We are sure that if you get more profound knowledge on consolidation, it can help you handle your debts, and ultimately get out of debt. 

Let’s get into it.

Student Loan Consolidation: When Should You Consolidate Or Refinance

Getting out of debt can take years after you graduate. One right way to manage your debt until you get rid of your debt is to consolidate or refinance. Whether you want to consolidate or refinance is a vital option you have to consider.

When Refinancing Becomes The Ideal Choice

The simplest way to define refinancing is when you acquire a new lender to clear off your existing student loan debts. So you don’t repay your initial debts because you’ve already paid them. Instead, you now make payments to your new lender who cleared off your first loan. Sounds simple, right? 

So why should you consider refinancing?

There are two reasons to consider:

  1. You can have low rates when you refinance, especially if you have a high loan rate. With that, you can save a lot of money.
  2. The payment you make every month can be reduced, which can be a massive advantage for you, especially if you repay your loans on a reasonable budget. 

Refinancing becomes reasonable when the rate is more favorable than the rate you previously had. If you refinance with a poor rate, you could owe a lot of money, so don’t go ahead with it.

The only time we recommend you refinance with a bad rate is if you’re mainly focused on getting a low repayment. You’ll take a long time to pay back your loans, but your payments will be small. We strongly advise that you avoid this option at all costs unless you don’t have any other alternative. Even still, call us, and we might help you find a way: 800-881-0687. 

In summary, if you have a private student loan, you should refinance when there’s a better interest rate, and you can save a lot of money. If you have a federal student loan and want to refinance, you can do it, but remember that you’ll no longer be part of the federal plan.

When Consolidation Becomes The Ideal Choice

Consolidating your loans means combining your many federal student loans into a new single loan. So instead of your new loan lender clearing off one loan, they will get rid of all your several loans.

Also, when you consolidate and do so rightly, you can gain advantage from several federal programs such as public and private student loan forgiveness programs or IDR plans. It’s impossible to consolidate your federal student loan into a different federal loan.

You can move your federal student loans to a private student loan. But if you do so, you’ll lose any benefit you have in federal student loans.

Consolidation Vs. Refinancing

Consolidating your loans is different from refinancing. It can be confusing sometimes. Here’s the difference between them. 

Consolidation

 Refinance

Consolidation is ideally used when there are several loans

 It’s ideal for one loan or when there’s a better rate with a single loan

It’s simple to turn your several loans into one payment

 The single payment each month is constant

You can only use this option one time

 You can use this option many times if applicable

Should You Consolidate Or Refinance?

It depends on numerous factors to determine if it’s the best option, regardless of its consolidation or refinances. These factors can help you decide whether or not you should consider student loan consolidation or refinancing:

  • The interest rate
  • Benefits available to you
  • Your remaining balance
  • Your financial situation
  • The type of loan you have

Ideally, the best way to decide is to contact an expert. Sometimes, it’s better to spend a few dollars to get rid of your debt faster, than to stay in debt for many years.

Now, let’s move to stage two of how to overcome your debt crisis.

Stage 2: Come Up With A Strategy And Implement It

Student loan consolidation program

After you’ve decided on which student loan consolidation to go with, you now come to the next step. There are several ways to develop a game plan so that you can get out of debt. Let’s go through them.

Draw A Budget Plan

When you get to know your repayment for each month on your loan debts, you’ll have to begin planning your budget. It’s very crucial. You can’t get out of debt without an intentional decision or strategy to implement.

Repaying your student loans should be like paying any other monthly bills such as rent, insurance, etc. Always make it a point to repay your minimum each month to avoid delinquency, default, or late fees. Try to avoid them at all costs. It’s essential.

Stick To The Budget And Make It Work

We know that it can sometimes be tough to come up with a monthly payment, especially when you’re not working yet. Other times too, the financial situation is just too much to bear.

Now, if you can, and we recommend that you should, find a part-time job, get into freelancing, work overtime, and, if possible, sell some items you don’t need anymore. It’s better to get rid of your debt now, than to postpone it. Besides, if you clear your loan debt, you can replace whatever you lost to pay your debt. It’s not easy, but stick to your budget and make it work. 

Another way is to limit your spending where possible. Find a cost-effective way to do everything, such as renting a cheap apartment, taking a bike or commuting to work, etc. you’ll thank yourself one day when you have a $0 loan debt. It’ll be worth it someday.

Don’t Pause if You’re Facing A Challenge

If you’re having a problem with making on-time payments, be quick to do something about it. Don’t wait. If you don’t make those payments, it can lead to garnished wages, federal tax returns, terrible credit scores, and worse, possible lawsuits. 

And when you get into a default, you’ll lose many benefits. If you have a federal loan, you can be eligible for deferment or an IBR plan. If your loan is a private loan, call your creditor and find out if it’s possible to acquire a payment plan or lessen your payments each month.

Stage 3: Make Extra Payments On Your Student Loans

If you have extra funds in your budget after paying all your monthly bills and everything you need, consider paying your loan debts. But before you do that, make sure you tackle any high debt you owe, such as car loans, credit cards, etc. 

Most financial experts will advise you not to forget saving towards retirement and emergency funds to clear those debts instead. It’s quite right if you can invest the money and get enough funds more than the interests on your loan debts.

Whether paying extra on loan debts is the best financial advice or not is still debatable. But take note that paying extra on your student loan debt will clear off your debt quicker. Should you decide to use the excess to clear your debt, first tackle the ones with the high-interest rate. 

Also, consider handling your private student loans before tackling federal student loans, which may be forgiven in the future. If, for some reason, you get out of a job, you can sign up for unemployment deferment, that’s one thing private loans can’t do.

Final Thoughts

When you have a massive student loan debt, you have to come to the terms that it’s not getting cleared in a few months. It can be overwhelming. But you need to exercise patience while you follow the stages outlined in this guide. Here are some few things to keep you focused while you pay off your loan debts:

First, keep monitoring your progress. Ensure that you write your total down every month as you repay your loans. You can write it on a sticky note and paste it on your wall or mirror. It will show your determination to get rid of your debts.

Secondly, write down your financial goals, including how you’re handling your loan debts and getting rid of your loans. Lastly, don’t forget to enjoy your victories. It doesn’t matter how much it is, enjoy your small accomplishments, and keep moving forward.

Finally, you can use student loan consolidation to clear your debt, but you should know whether to go with federal or private student loans. If you’re facing challenges in your finances, contact our expert team, and we will be glad to help you out. Call now: 800-881-0687.