How To Make Your Debt Relief Look Like A Million Bucks

You've heard about debt consolidation and the thought of making a smaller payment to 1 lender appears like an aspiration compared to your current nightmare of feeding an apparently endless stream of greenbacks to a few different lenders. No contest--where do you register?

Rein yourself looking for a moment. Consolidation would be the perfect means to fix your financial woes nevertheless may possibly not be. So before you jump on the consolidation bandwagon, here are some issues you might want to consider.

Are Lenders Axing Consolidation Loans?

To remedy some inequities within the federal student aid programs, Congress recently enacted the College Cost Reduction and Access Act of 2007, which among other provisions, cuts lender subsidies which may have historically experienced place to encourage lenders to participate in within the federal education mortgage programs. This legislation, together with the recent subprime mortgage credit crisis, has lenders taking a closer look at whether education loans carry on being profitable for them.

Higher education leaders anticipate that lenders may reduce the Stafford and loan incentives and discounts previously agreed to attract borrowers--and eliminate them for consolidation loans. Consolidation loans, with all the tightest profit margin of all education loans, might even be for the chopping block for a few lenders and some might increase the minimum balance that qualifies a borrower for a loan consolidation.

Even if lenders back out with the debt consolidation loan business, consolidation remains available through the federal Direct Consolidation Loan program, nevertheless the government doesn't provide you with the incentives and discounts that lenders have long been using to draw in borrowers.

Are Interest Rates Coming Down?

Stafford Loan and variable rates, which are determined by a formula that includes a persons vision rate of the most recent 91-day T bill, change every July 1; rates are hoped for to drop significantly on July 1, 2008. This decrease should make educational loan variable rates very attractive. Because a persons vision rate for a loan consolidation is calculated employing a weighted average of most interest levels for all in the loans you'd include in consolidation, you might want to hold back until after July 1 to create a more informed decision.

Consolidation: Thumbs Up or Down?

To consolidate or otherwise not to consolidate: that is the question. But there's hard answer.

Consolidation might be a good option if:

You have a very variable interest rate and would rather have a fixed interest rate. This may be a good plan nevertheless, you may want to wait and contemplate it only when rates of interest start returning up. And, what goes on if variable rates stay down or drop through your fixed price?

You have a very variety of loans and lenders and would like to only have one lender. One problem--you may need to 'pay' for the convenience by accepting a higher interest rate on some of your loans.

You need more flexible repayment options. Repayment possibilities through consolidation are:

Standard - fixed monthly obligations.

Graduated - focus on low payments and increase every two years.

Extended - for amounts more than $30,000, sometimes a fixed or graduated option.

Income contingent - determined by annual income and total loan debt, having a payment adjustment every year as income changes. The FFEL program offers income-sensitive repayment, which bases monthly payments over a amount of income.

Although the Stafford Loan programs offer flexible repayment options, the Perkins Loan program currently won't. Note: An income-based repayment option can be intended for FFEL and Direct Stafford, Perkins, Grad PLUS, and Federal Consolidation (less undergrad PLUS) loan borrowers on July 1, 2009.

You have to ease through to your monthly payments. Beware of this method. A lower payment generally means an extended payment term and paying more interest over time.

Consolidation will not be a good option if:

Any in the loans you want to incorporate have cancellation or forgiveness options that could be lost should you consolidate.

The Perkins Loan Program, by way of example, carries a cancellation option if you teach in certain public school service professions or subject areas or certain designated low-income schools.

Portions of an Stafford Loan could possibly be qualified to apply for cancellation if you teach fulltime for five consecutive years in a very low-income school. (Under certain situations, this method may also be available for consolidation loans.)

Your current lender offers rebates (for example an annual lowering of your monthly interest) for successive on-time payments. You would lose this option should you consolidate and, as mentioned earlier on, lenders may be phasing out incentives for consolidation loans.

You consolidate within your grace period(s). The remainder of your respective grace period is lost.

You've already substantially reduced the sum you owe. Because consolidation generally extends your loan repayment period, often by having an increased interest, you could possibly ultimately end up paying more.

Research and Conquer

Unfortunately, the reply to whether or otherwise not consolidation fits your needs is?" it depends." To find out, collect information about what federal loans you have (Perkins, FFEL, PLUS, and Direct Loan programs) by accessing the National Student Loan Data System (). Collect information regarding any private educational loans you might have completely from your lender(s). Take the loan information and locate a web based consolidation loan calculator to assist you determine how your loan repayments may change through consolidation.

Then contemplate the subsequent questions:

Am I prepared to pay higher interest or extend my loan repayment period and pay more interest as time passes?

Am I likely to lose any loan cancellation options or incentives for which I'm currently eligible?

Can I afford my current payments without consolidating?

Would consolidation make my payments now more affordable?

Does the 'lower payment now' benefit offset the 'pay more for longer' downside of consolidation?

You can easily see that this decision whether or not to consolidate is not monochrome. It is an individual decision--it may work for a few and never for other people. Because there are lasting implications to consolidation, seek information and weigh the pros and cons carefully. When all in the evidence is in, you have to be capable to decide whether or not a loan consolidation is surely an answer for you.