Advantages of Debt Consolidation for Students

  • A student loan leading to bad debt has always been a major problem plaguing the economy. Individuals fall into student debts for a variety of reasons, from failure to manage financial affairs effectively, different due dates of loans, and low-paying jobs. All of this creates a most unfavourable and financially volatile environment for young people who sometimes find themselves at a dead end. Most people consider applying for bankruptcy, but it has a far reaching negative impact on the person’s credit score.  For most of these cases, debt consolidation can be the most practical and effective problem-solving method available; combining all existing loans into one consolidated debt with lower fees.

     

    Debt consolidation plans include a consolidated unsecured loan to replace all existing debts, usually done by a debt management company. For a student, they are generally the last resort, or even the only solution, available. (Information credit: https://debt-therapy.co.za)

     

    Debt consolidation for student loans has several benefits, which are as follows.

     

    1.  Interest rates are lowered: Interest rates are lowered to the point when it becomes easier to pay the loan amount back. High interest rates combined can burden individuals and is not a favourable financial position to be in. Sometimes, the interest payable becomes greater than the actual loan amount.  For students who have a relatively better credit score, a lower interest rate can be achieved with a consolidation programme. The debt management company will adjust the interest rate payable, decreasing it by a significant amount, which makes it easier to pay back.

     

    2. Monthly Payments:  Consolidated debts are a great way to change the cycle of monthly payments. Besides consolidating debt into a single, easy-to-track chunk, one can also adjust or lower their monthly payments according to the strain on their household budget.  Debt consolidation loans have been proven to be a positive feature for creditors as well. People following a consolidation programme have the tendency to pay on time or pay more each month because of improved financial management overall.

     

    3. Adjusting Payoff Date: Monthly payments are generally tied to the debt consolidation loan term, or the contract between the lender and the individual. The longer the loan term, the fewer instalments have to be paid each month, and vice versa. The loan term and payoff dates can also have a direct bearing on the total interest payable. For example, a shorter term means higher monthly interests but lower interest charges on the whole.  For an individual, it is crucial to carefully consider all the possibilities before making a choice.  There are many online loan calculating websites where repayment terms and interest rates can be clearly calculated.

     

    Whether debt consolidation is right for an individual or not depends entirely on the efficient financial management on the part of the individual.  Debts are never exactly the same, with financial circumstances playing a key role. Following the wrong financial advice or decision can make a debtor’s position irredeemable. Hence, all the alternative strategies included here should be carefully analysed before making the final decision.