I received a couple of questions about student loan debt and student loan consolidation.
I’ll try to provide some information to help answer these questions, but as usual I welcome your suggestions in the comments. Here’s the first question:
What is the best way to manage all of your student loans once you have finished and would you suggest a consolidation or would that ruin my credit?
The best way to manage your student loans after graduation is to pay them off as soon as you can. Take note of every loan you have. Pull your credit report to make sure you’ve accounted for all of them. Keep meticulous records of what you owe, who you owe it to, and evidence that you are paying.
I used to be in the “keep your student loan debt forever” camp, but we ultimately decided to pay off our student loan debt early. Student loan debt can’t be forgiven in bankruptcy like other debts. It’s never going away. So pay it off as soon as you can.
As for the consolidation, as long as you are referring to a federal student loan consolidation (provided by the Department of Education), then you should not have anything to worry about. Gerri Detweiler, consumer advocate, reinforces this by noting that you are essentially trading installment debt for other installment debt, and your total debt load isn’t increasing.
To consolidate, either go to that website or talk directly with your current lender about a consolidation solution. Don’t pay anyone to do it for you (i.e. origination fees). Also, watch out for pre-payment penalties. Don’t sign up for a new loan unless you’ve read, understood, and agreed to the terms. Have a family member review it with you.
Lastly, be sure to review the many loan forgiveness programs available (i.e. for teachers) as well as the federal “Pay As You Earn” income-based repayment plan.
Alright, now for question two:
I have some credit card debt and student loan debts. Should I work toward paying off my student loans early to get them out of the way? Is it good to consolidate several different student loans?
In most cases credit card debt should take priority over student loan debt. But there are some rare instances where it wouldn’t, so weigh the factors: interest rates, total balance, personal factors, etc.
Yes, you should definitely try to pay off your student loan debt early. There are tax breaks and the increased career marketability that come with having student loans, leading to the thought that it is a “good” debt. But I’ve come to believe that it’s best to try to get rid of all debt as soon as possible. Just kill it off.
Again, as for consolidation, as long as you are referring to federal student loan consolidation then you are okay. In most cases student loan consolidation will not result in a lower interest rate. But it will give you only one loan, one bill, and one payment to worry about. Which, makes life a lot easier and probably decreases the likelihood that you’ll miss a payment.
Some people still disagree, but the general consensus is that student loan debt should be consolidated to simplify your life.
Did you consolidate your loans after college? Can you share your experience? Was it a good move for you?