You did it, you finished school. You have the education to get out there and start a great life, but there is one thing holding you back – your enormous student debt. With rising tuition and other costs, this is becoming a very common problem for everyone. School is extremely expensive, and most people that are smart enough to go end up with tens of thousands of dollars in debt when they are done. Consolidation loans are a great way to reduce the amount of interest that you are paying. They also reduce the amount of your monthly payments, which will free up some extra money for living expenses.
The concept of the consolidation loan is simple- it lumps all of the debt together into one loan at a low interest rate. The result is only one monthly payment at a lower amount. It makes your finances much simpler and saves you money by lowering your overall interest rate. It is especially good for people who hold high balances on credit cards. The average interest rate on a credit card is 18.5- 22%, the average interest rate on a consolidation loan is 5-10%. This can create significant savings if you hold any long-term debt on your credit card. Many people don’t worry about their interest rates, but it is one of the biggest ways that you can save money. Always remember that if you hold $5000 on a credit card for a year, it will cost you more than $1000 in interest for that time!
Consolidation loans are a great option for many people, but there are instances where it may not be as advantageous. One very important thing to know about when you are considering a consolidation loan is that most student loans have tax deductible interest. This means that the interest that you pay on your loan can help reduce the amount of tax that you are paying on your income tax. This can be an advantage to many people. If you move the debt away from your tax deductible loan and move it to a consolidation loan that does not have this tax break, even if the interest rate is lower, it will still likely cost you more. Adversely, if you are able to lump all of your debts into one tax deductible consolidation loan, you will be even further ahead. Make sure you talk to your bank and make sure that you know the tax implications before you make any decisions about your debt.