You may know that you want to do something about your student loan payments, but the problem is knowing exactly what to do. There are two basic options when it comes to private student loans (federal loans won’t be covered in this article as there are some additional terms to consider when working to lower government loan payments).
The options you will find include refinancing or consolidation. The two sound the same, but they are actually different. Knowing the difference between these two options will help you decide which option is right for you.
Refinance your loan
Essentially, refinancing means you’ll get a new loan to pay off existing loans. Once you’ve refinanced, the two loans will be combined into one loan with a lower monthly payment. Refinancing usually allows you to choose better interest rates and payment terms, but in most cases you need very good credit (and a good monthly payment history) to be able to refinance.
You can refinance both federal and private loans, but refinancing a federal loan means giving up certain rights that you probably don’t want to lose.
Consolidation
When you consolidate a loan, you don’t get a new loan. Instead, it combines multiple loans into one loan. The benefit of consolidation is that it is easier to make a single payment rather than multiple payments for multiple loans. However, there are drawbacks to consolidation. While a payment may be reduced if you consolidate a loan, there’s a good chance the interest rate will be much higher; this is something you’ll want to be very careful with.
There is no point in consolidating a loan for the sake of ease and paying higher interest rates. If you’re tempted to consolidate, look at several other options before making this decision. Refinancing might be a better route to take if you can refinance your loans.
The difficulty
The problem with lowering most monthly student loan payments is that you really need to have excellent credit to get a great rate. This can be (and usually is) problematic, as most graduates with large student loans a) may not have a steady job yet b) may not have made a payment or may not have made one anymore .
If you’re having trouble making your loan payments, it’s time to get financial help. Although bankruptcy is the last resort, a bankruptcy attorney can help you decide if it is the right option for you.