After the graduation ceremonies are over and the parties dim down a little, fresh graduates often realize the terrible burden of several loans. It is not just the loans related to college tuition. There are other credit card payments, car payments and more. One prominent solution to multiple debts is the consolidation of existing loans. It should help you to track some student loan payments and the progress of your finances. It reduces the number of monthly dues to just one, and that makes it easy to control your expenses related to loan payments. Consolidation of all debts including a plethora of student loans is indeed a smart way to manage your money.
When do debt consolidation attempts fail?
Many people attempt debt consolidation without any idea about the allied process, the outcomes, and the disadvantages. There are times when consolidation loan is the last option necessary, but the lack of knowledge about the process makes people think that debt consolidation is what they need. Such a situation can be disruptive to your finances. So before you make a decision, check out nationaldebtrelief.com for all the information you need on the relevant topics.
Here are the top 5 misconceptions about debt consolidation loans that you need to get rid of before approaching a consolidation company –
Refinancing and debt consolidation are the same
The reality is – consolidation and refinancing are two very different procedures. When you are eager to consolidate your student loans, you are looking towards combining several federal student loans. You can collate them into a direct consolidation loan that the Department of Education will issue. Usually, the resulting new interest rate will be an average of the previous ones. You will, of course, have to pay an extra percentage for the consolidation loan too.
Refinancing is when you apply for a new loan that can help you pay off your existing debt. The new credit comes with new terms of repayment and interest percentage. Usually, only private lenders provide refinancing services. Whether you pick a single loan to refinance or multiple loans, you can choose your interest rate. You can select a fixed interest rate or a variable rate. In either case, refinancing helps students to pay off their cumulative loans from different sources at reduced monthly payments. They help to save money and interest over time.
Loan consolidation is the same for all borrowers
Student loan terms vary according to the lending parties. The repayment terms are variable, and so are the interest rates. For example, Direct Consolidation Loans for federal student loans almost never reduce interest rates and monthly payments. Therefore, the goal is to streamline the payment process.
For credit card debts, insurance bills, medical bills, home loan payments and car payments, you can always opt for debt consolidation. When private loans and federal loans are present, you need to approach a loan counseling and debt consolidation company. During this process, they will take into account factors such as your financial situation, income, and credit history, and then decide the repayment terms.
Therefore, it is the most significant mistake to think that you will get the same deal that your best friend or your parents are getting from a debt consolidation company. Debt consolidation is a finance management strategy, and it does involve much personalization.
The only way to fix interest rates is by debt consolidation
Even in 2018 people believe that they can hold their loan interest rates steady only through the merger of their existing debts. That was true even until a couple of years ago, and it did have the autonomous power to protect you from market fluctuations.
It changed post-2006 as the government introduced a new reform that fixed interest rates for federal loans. That means, even if the interest rates on new student loans increased after your graduation, the hike would not affect the additional sum that you are paying for your existing l
ines of credit.
When you get a private loan, you can choose between fixed rates and variable rates. The variable rates can increase or decrease due to market conditions. Here, refinancing your loans or even consolidating them makes complete sense for getting lower monthly payments.
Debt consolidation comes with a pretty price
Debt consolidation companies sometimes charge you a handsome fee for collating your loans for you. However, you can also get this service for free. Several well-known non-profit debt counseling companies help their clients consolidate their credit for free. Many US citizens take the help of online tools and websites to consolidate their debts on their own. Did you know? You can complete an application for consolidation loans in 30 minutes average with a little knowledge of the requisites.
Go ahead and browse all you like. Bookmark some companies that offer debt consolidation services in your area. Compare their ratings, reviews, and testimonials. Compare their terms and conditions, qualification requirements and their fees. When it comes to loan consolidation, there is no reason you should compromise. Always pick the company that is offering you the best rates and guaranteeing you the lowering of monthly payments. Many private companies do not charge an application fee or disbursement fee. It can save you good money!
Wrapping things up – the gist of debt consolidation and the false beliefs
So far, we have seen that:
- You cannot replace debt refinancing with debt consolidation.
- You cannot expect consolidation loans and their terms to be the same for all loans.
- You can achieve fixed interest rates by processes other than debt consolidation.
- You do not have to pay to consolidate your loans. You can always do the process on your own.
It helps us come to a sound conclusion – debt consolidation is never the only great idea for survival. Not all borrowers can benefit from it, and sometimes, all you need is a thorough debt counseling process to understand your financial situation. Based on the expert opinion, you can weigh the pros and cons that debt consolidation brings to you. Getting a debt consolidation loan is not a light decision, and you should think about all the effects before you get one.