The idea of debt consolidation is to take several loans and roll them up into one larger loan. This often reduces payment amounts and reduces interest rates so you can pay off your loans faster. Debt consolidation for student loans occurs when you take all the student loans you may have and consolidate them into one payment. Many students do this upon graduation so they only have to deal with one loan and make one payment. Since they recently graduated, they will be looking for employment and will soon be able to make the payments on the loan. This helps free some cash and allows the student to make a higher monthly payment than the minimum required amount.
Paying more than the minimum required means that the additional amount is added to your principle and the loan will be reduced a lot faster. It is always recommended to pay off more than the minimum of all debt if at all possible. The faster you have student loans paid off, the faster you can enjoy the fruits of your labor. With debt consolidation for student loans, federal loans are handled slightly different than with private loans. For federal loans, a loan consolidation company purchases the loan and locks in the interest rate. The actual terms of the loan have not changed; simply the interest rate is locked in based on the year’s interest rates. This can often be a great benefit to a student’s credit rating, making the payments lower and easier and with timely payments improving the credit rating.
For private debt consolidation for student loans, there are similar rules and requirements as with any private sector loan. Additionally, although lending institutions may have varying requirements and rates, they quite often adopt many of the standards found in federally regulated loans. For students just graduating, they are faced with many real life situations such as getting a car, buying a house and finding a job. This may put a financial strain on the student and may require a more sound credit history. Debt consolidation for student loans will help accomplish both of these goals. You will have a sound credit history that is reported to the credit bureaus if you keep your payments current. You will also have a reduced payment rather than having to pay several loans at once. This will help you better manage your money so you can more easily stay current as well as have extra money to pay for the necessities.