Student Loan Debt Consolidation
The correct decision will depend, in part, on the age of your student loan. A student loan is only automatically discharged when filing bankruptcy or a consumer proposal in Canada if you have ceased to be a student for more than seven years at the time of your filing. If you are a recent graduate, your student loan will not be discharged.
Cost of consolidation
It sounds like in your case your student loan debt is less than seven years old. If this is the case, a debt consolidation loan may be a good alternative. However, before signing on the dotted line for the loan, you should consider the cost of the loan, as compared to simply continuing to pay your student loan directly. A government guaranteed student loan may have a lower interest rate than a bank loan, and it may have more favourable pre-payment privileges. If you have extra money you can generally pay extra on a student loan to get it paid off faster. With a bank loan you may not have that opportunity.
Debt Management Option
No matter which option you choose, if you are concerned about your job, it would be prudent to bank some extra money each month, so that if you do lose your job you have funds to continue making your loan payments until you find a new job.
Bankruptcy or Consumer Proposal
Every situation is unique. To get advice about your situation, book a no-charge consultation with a Canada bankruptcy trustee to review your options and help you decide which solution works best for you.
Try Lenders With Low Credit Score Minimums
If you have a low credit score, dont automatically assume you cant get a loan. Lenders have different credit requirements, and many are willing to consider lending to those with bad credit.
With some searching, you can find a debt consolidation loan for bad credit.
LendingPoint, for example, offers unsecured personal loans for borrowers with credit scores as low as 585. Make sure you read lender reviews and choose a reputable lender. Also, keep in mind that a lower credit score might result in higher interest rates.
Understanding Student Loan Consolidation
Following graduation from college or university, you may be one of the thousands of students facing loan repayment. Up to 60 percent of the cost of your education may have come from federal student loans administered by the Canada Student Loan Program. If you needed more financial assistance, you may have explored provincial or territorial loans. Finally, you may have accumulated private loans and lines of credit offered by banks to help you meet the costs of your education.
It’s paramount that you know where your loans came from so that you can be prepared to repay them in a timely fashion. You may receive correspondence from the government regarding student loan consolidation, and it’s also important that you understand that process and what it means to you.
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What Are The Benefits Of Consolidating Credit Cards
and student loan debt can be consolidated into one monthly payment. Because the two debts are extremely different, however, its not always in your best interest to do so. One of the most notable reasons why it isnt wise to consolidate credit card debt and student loans is that federal student loans typically have a lower interest rate than you can obtain via a private loan. Therefore, if you consolidate credit card debt with a student loan, you will likely end up paying more for the student loan than you would on your original plan. Furthermore, its difficult to obtain a private loan amount for more than the balance of your current student loans.
If youre looking to consolidate debt to save money, it may be in your best interest to consolidate your credit card debt and reduce the interest rate, if possible, so you have one low monthly payment.
How To Consolidate Credit Card Debt With A Personal Loan
This is another form of do-it-yourself debt consolidation. It generally only works if you have a good credit score.
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Can Debt Consolidation Work For You
Learn how consolidating debt may help you improve your financial situation.
Debt consolidation is one way to make paying off your debt more manageable. Instead of paying several minimum monthly payments on a number of bills, this repayment strategy involves getting a new loan to combine and cover your other loans or debts. You can then repay all of your debts with a single monthly payment.
Will Consolidating Your Credit Card Debt Reduce Your Interest Rates
One of the main benefits of consolidating your credit card debt is getting a reduced interest rate. Reducing your interest rate allows you to lower your monthly payment and, hopefully, pay off your debts sooner. But if you canât lower your interest rate with a consolidation loan, then itâs probably not worth the extra cost and fees youâll incur consolidating.
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What You Lose When You Combine Federal Student Loans With Private
In a word: eligibility.
The federal government offers a range of consolidation, repayment plan and forgiveness programs. They have the Federal Direct Consolidation loan, as well as affordable repayment plans, like Pay as You Earn. Theres also the prized Public Service Loan Forgiveness program. This forgives the remaining balances of public servants after 120 payments on a hardship program.
All these programs only apply to federal student loan debt. So, if you have federal student loans and private student loans, you must keep them separate to use these options.
When you combine both types of student loans with a private consolidation loan, federal debt converts to private. The money from the private lender goes to your federal loan servicers to pay off those debts. So, federal student loan debt becomes private student loan debt. Now, this debt is no longer eligible for any federal programs.
That may seem fine now, but if your situation changes, you may miss that eligibility.
Can You Combine Student Loans With Your Spouse
Its impossible to combine your school loans with your spouse. Student loan spousal consolidation loans are no longer available from the federal government.
From 1993 through 2006, the U.S. Education Department offered spousal consolidation loans, often known as joint consolidation loans. It allowed two married federal loan borrowers to consolidate their debts into a single loan.
Your existing loans are paid off with a consolidation loan. Youre left with a single loan and a single payment to make each month. Its a technique that can make the repayment procedure go more smoothly.
You have one joint consolidation debt rather than many monthly payments.
In theory, the concept may seem appealing. However, this method of consolidating student loans has several drawbacks.
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What Is A Direct Consolidation Loan
The Direct Consolidation Loan process blends all of your existing federal loans into one new loan for the remaining life of the loan. With federal student loan consolidation, you now have only one loan payment due to one loan servicer each month with a new fixed rate. Its important to note that any private student loans you have cannot be consolidated with a Direct Consolidation Loan.
While consolidating federal education loans can make student loan borrowers lives easier from a payment perspective, direct student loan consolidation does not save any money. Your new interest rate with a direct consolidation loan is simply a weighted average* of your existing rates.
*How does a weighted average work? Say you have two qualifying student loans: one $10,000 loan with a 6% interest rate and another $5,000 loan with a 5% interest rate. Calculating your new rate works like this: Because $10,000 is of your total loan balance and $5,000 is , youd multiply each interest rate by that fraction and add the results: + = 5.67%. The weighted interest rate is then rounded up to the nearest one-eighth of 1% .
How To Consolidate Federal Student Loans
If you’ve decided to apply for a direct consolidation loan, you can do so online through the Federal Student Aid website. Here are the steps you’ll follow:
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Advantages Of Loan Consolidation
A loan consolidation is a great idea if you cannot afford your monthly payments, and loan consolidation cuts your monthly loan expenses. A loan consolidation also simplifies your monthly bill paying chore because one payment replaces several. A loan consolidation can save you money, if your new loan has a lower rate than your old loans and debts. Finally, a loan consolidation can help improve your credit score if you were missing payments previously, and you make your new consolidated loan payments on time.
Prioritizing Debt If You Dont Consolidate
If you decide not to consolidate student loans and credit cards, youll need to decide which one to pay off first.
Generally speaking, its wise to pay off your credit card debt first, as it likely has a higher interest rate. In addition, lowering your credit utilization ratio can boost your credit score.
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If you choose to pay off the debt with the highest interest rate first, simply put any extra money you have toward that balance. Of course, you should also continue paying the minimum balance on your other obligations, so they dont go into default. When your balance on the highest-interest loan falls to zero, shift your focus to the debt with the next-highest interest rate and continue on until youre out of debt.
Whatever your debt management goals, look at how different refinancing options can help you achieve them. Youll probably find that student loan and credit card debt consolidation isnt cost-effective, but there could be another debt solution thats perfect for what youre trying to accomplish.
Andrew Pentis and Laura Woods contributed to this report.
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Can You Consolidate Private & Federal Loans
A federal Direct Consolidation Loan cannot consolidate private and federal loans, only multiple federal loans. Private lenders can consolidate private and federal loans, but at the cost of losing valuable federal repayment options.
Income-based repayment plans, loan forgiveness and deferment and forbearance are some of the perks of borrowing from the federal government. If you plan to take advantage of any of these options, you should consolidate federal and private loans separately.
Some federal loans require consolidation to be eligible for alternative federal repayment plans. Generally, if you have Perkins loans or most FFEL loans you need to consolidate them in order to qualify for REPAYE, PAYE, IBR or ICR. Be aware that consolidating federal loans restarts the process for federal loan forgiveness.
Consider A Debt Consolidation Loan With A Cosigner
Many lenders wont offer debt consolidation loans for people with bad credit, but they might approve your loan application if you have a cosigner or co-borrower with good credit.
To get a debt consolidation loan with a cosigner, youll need two things: a willing partner and a lender who allows co-applicants. Some, but not all, lenders allow cosigners for their personal loans.
See if a partner or family member who has good credit is willing to cosign the loan, and youll have a better chance of approval on debt consolidation loans for bad credit.
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Federal Vs Private Student Loans
All students are eligible for federal loans, regardless of financial need. You can consolidate Direct Student Loans using one of several income-based repayment plans and there are loan forgiveness programs.
With private loans, your credit score is a major factor in whether you qualify for a loan. You may need a co-signer. Debt consolidation is one of the few repayment options available on private loans and there are no loan forgiveness programs.
You cant include private loans when consolidating through the federal Direct Consolidation Loan program. You can include federal loans when consolidating with a private lender, but you lose the perks associated with federal loans so its best not to mix the two.
Ways To Consolidate Credit Card Debt
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Consolidating your debt is ideal if the new debt has a lower annual percentage rate than your credit cards. This can reduce interest costs, make your payments more manageable or shorten the payoff period.
The best way to consolidate will depend on how much debt you have, your credit score and other factors.
Here are the five most effective ways to pay off credit card debt:
Refinance with a balance transfer credit card.
Consolidate with a personal loan.
Tap home equity.
Start a debt management plan.
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Equity In Owned Vehicles
If you have a vehicle that is paid off or has a low balance in comparison to what it is worth, this could be an interesting route to take. Taking a loan out, using your vehicle as collateral, would allow you to get a loan to pay down your other creditors. In this situation, you gain the ability to receive an auto loan rate which is typically much lower than an unsecured personal loan.
The downside here would be a limitation of the loan being capped at the value of the vehicle. Also, when carrying an auto loan, most lenders require full auto insurance coverage on the vehicle, which could increase the monthly expenses if normally carrying PLPD. That said, this is a great way to leverage an asset to obtain a lower loan rate.
Can Spouses Combine Student Loans: Pros And Cons Explained
- Student Loans Resolved
Marriage is a significant personal and financial commitment. As a result, youll need to adjust to each others lifestyles, routines, and holiday traditions. You might even decide to combine student loans to make budgeting easier.
But, can your combine student loans with your spouses?
When you think about it, the average college graduate has between eight and ten separate debts when they leave school.
If youre a married couple, you could be dealing with anywhere from 16 to 20 student loans, each with its due date and servicer, causing tremendous monthly stress.
This guide will show you the pros and cons, including how to combine student loans.
With that said, lets begin.
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You May Want To Consider Student Loan Consolidation If
- You want to simplify your life with a single monthly payment. If youre tired of juggling several loan payments at once, debt consolidation can make sense. Once you consolidate, youll have a single loan payment to make and keep track of each month.
- You can get a lower interest rate with a private lender. If your student loans are at high interest rates and you think you can get a better deal, you may save money by getting a new loan with a lower interest rate. Keep in mind, you can find out how much you can save by exploring student debt consolidation options on LendingTree.
- You want to lower your monthly payment. If the monthly payment on your current loans is too high, debt consolidation can help. Most of the time, you can lower your monthly payment by extending your repayment timeline. Keep in mind, however, that you may pay more interest the longer you extend your loans even if your interest rate is lower.
- You want to pay down your loans faster. While debt consolidation doesnt guarantee early repayment, it can make the process easier. With a single monthly payment to worry about, it might be simpler to focus on repayment and come up with extra funds to pay toward your loan principal each month. You may be able to pay down your loans especially fast if you get a lower interest rate, too.
What Are The Pros And Cons Of Student Loan Consolidation
The number one advantage of student loan consolidation is a simplified loan payment. You also have the option to select a longer loan term that can reduce your loan payment. Depending on the loans you have, there may be some downsides to student loan consolidation. Perkins loans, for example, may be forgiven for teachers and other public servants. Consolidating them would eliminate access and enrollment to this loan forgiveness option. Additionally, any grace period or deferment you have with your current loan program also goes away if they are consolidated.
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