College 101: Consolidation Consolidation? Do Your Homework
I’m graduating with a lot of debt from a lot of lenders. Not exactly ideal, but I’ve got a job that pays pretty well, so meeting the monthly payments won’t be that stressful. What is stressing me out is the fact that I’ve got to pay back a bunch of different lenders, using different websites, on different timetables, with different passwords and usernames. I really want to simplify all this moving forward. I’ve heard about debt consolidation services. Are these legit? How do they work?
Yes, they are legitimate. Debt consolidation involves refinancing your loans with extended payment terms. The goal of debt consolidation is to pay less per month towards your debt, over a longer period of time. Debt consolidation usually results in a lower annual percentage rate (APR), especially if you have good credit.
Financial websites suggest several different ways to consolidate your debt, but it sounds like you might be looking for what Nerdwallet calls a “fixed-rate debt consolidation loan.” Here’s how it works: Say you owe $10,000 with a 6 percent interest rate, which you will pay off over five years. You will end up paying $193.33 per month to pay off the loan (we used this payment calculator to figure out the terms). If you were to consolidate on good terms, for example you brought your interest rate down to 4.5 percent and your loan term up to 10 years, you will end up paying only $103.64 per month. While you end up paying a less per month, you pay more overall.
You must consider several factors before consolidating your debt. Debt Consolidation Loans (DCL), a company that aggregates information about consolidation loan terms, takes five factors into account when matching borrowers with lenders. The first factor is the borrower’s qualifications, including credit score. Second, the APR and monthly payments of the loan; you don’t want to borrow for a longer term with a higher APR, because you will end up paying much more. Third, the fees the lenders charge (which can be high if you’re not careful). Fourth, the accessibility and convenience of the lender’s sites. And fifth, the lender’s commitment to customer service.
With all of this information, how do you determine whether consolidating loans is right for you? Your decision should depend on a few factors, but two have priority: first, what can you pay, and, second, whether your lenders are trustworthy. When it comes to your income, a rule of thumb several sites have suggested, including in this article from credit.com, is to consider debt consolidation if your debt is less than 50 percent of your income. While considering consolidation, you should also take the time to create a solid plan to repay your debt once it has been consolidated.
The trustworthiness of your lenders should also concern you. Since you will be paying them thousands of dollars, you should be sure you are paying that money to groups that you can trust. As DCL advises, you should check consumer watchdog sites before consolidating loans. The NFCC, National Foundation for Credit Counseling, has several pages of consumer advice for those looking to simplify their debts. For example, their page on fair debt collection practices has information on how to dispute debt with a collection agency. If you find that a business violates fair debt collection practices, you should seek legal counsel, suggest Lewis Law attorneys in Rock Hill.
If you are prepared to deliver on your debts, just be sure that you have a roadmap to move forward. Consolidation is one of many ways you can pay back loans more easily. Many options are out there, and remember that your research will pay back dividends.Subscribe to The Daily Cardinal Newsletter