Instead of applying for a student loan bankruptcy, more and more people are getting student loan debt consolidation. After all, credit counselors often advised them to shy away from the path of student loans bankruptcy. How come?
Aside from the stringent criteria and legal actions connected to bankruptcy, this option often marks an individual unworthy to receive credit. Why? This is because a declaration of bankruptcy can stay in a credit report for seven to ten years. And as soon as creditors see this detail, they will surely decline your application for credit. You will also find it difficult to locate low interest creditors, especially during emergency situations. Hence, as long as you can find other solutions, it is recommended to avoid student loans bankruptcy.
But if you will get a student loan consolidation over student loan bankruptcy, you will experience the unique features of this loan program. So, allow us to enumerate the benefits of taking debt consolidation.
Advantages of Student Loan Debt Consolidation
Consolidating debts allows you to lock in a low interest rate for your debts. Currently, federal student loan rates are at all-time lows. This means that today is the perfect opportunity for consolidating student loans. By averaging the rates of interest imposed on your debts, you can be assured of paying lower monthly installments. This will surely ease your worries over juggling your monthly bills and debt repayments.
Another benefit of consolidating student loans is that it can improve your credit rating. Because of numerous open credit accounts, you will observe that your credit score is very low. However, with consolidation, you can reduce the number of your open credit lines. This will greatly influence your credit report, until such time that you are able to achieve a higher level of credit worthiness.
But, of course, a beneficial loan program has its own drawbacks. Let us now discuss the negative aspect of student loan consolidation and how you can avoid them.
Disadvantages of Debt Consolidation
Consolidating your debts can increase the overall cost of your financial obligation. When you consolidate your student loans, the debts will be merged into a new loan with longer repayment terms. Though you will pay small amounts each month, the long-term interest rate of your debts will surely increase. So, if you can afford to pay off all your outstanding debt on student loans, then you may skip debt consolidation .
People who take the road to student loan consolidation also learned about the strict requirements of this program. Many credit agencies require people to provide documents that will prove their identities and attest to their need for credit lines. Some also oblige applicants to show their credit report, certificate of graduation and the proofs of credit from different lenders.
So, before finally taking a student loan consolidation, you need to carefully weigh your situation and do more research about the effective strategies to consolidate debts . This way, you can find a credit-busting method that will require less and that will provide funds for credit in the soonest time possible.
We hope that this article provided you much insight on the pros and cons of taking student loan consolidation.
About the Author
Samantha Wilson is a consultant for managing credit cards and finding the best student loans. For years she has written student credit card articles that helps build student credit, and student loan help articles that can be used as guides to handle student loan debt.