Are Student Loan Consolidation Traps?
Today’s student loan consolidation is the combination of the loans that you have. The financial assistance that the government has given students means that most of them can get their loans consolidated and at a lower rate of interest. That should be a great incentive for taking control of your finances.
However, student loan consolidation can also come with some traps. Here are some of the pitfalls to avoid when you take control of your finances.
The first trap is that once you consolidate your loans you will pay the consolidated loan and not the loans that you have previously taken out. The tax advantages of taking out a consolidation loan are that you will no longer owe the interest on it and that your tax deduction will increase.
The second pitfall is that your consolidation loan will increase
The second pitfall is that your consolidation loan will increase the interest rate of all of your other loans, not just the consolidation loan. That means that all your other payments will go up and it will be difficult to make your payments on time.
The third pitfall is that the consolidation loan is a debt and the interest will begin to accrue immediately. When you are consolidating your debt, it is imperative that you make sure that the consolidation loan is paid off before you pay your debt on time.
The fourth pitfall is that once you consolidate your debt, you will have one payment. This can mean more fees and hidden costs that you may not even notice.
Your credit score will also go down with the consolidation loan. In fact, the worst part is that you may find that the lenders will report the default on your consolidated loans to the credit bureaus, causing you to lose all of your credit cards.
Remember that these negative effects
Remember that these negative effects will only occur after you have made the payments. If you can make your payments on time and then you can take care of your consolidation loan, the impact on your credit will be minimal. It may even be a benefit.
Another pitfall is that you may not be able to re-do your loans. The reason for this is that many loans are sold to the highest bidder, meaning that the lenders may sell the loans to a company that specializes in buying loans.
This means that the problems that you will encounter with your student loan consolidation can actually happen again with another lender. If this is not the situation for you, consider the advantages of being able to apply for another loan or a loan that is not associated with your student loan consolidation.
You should look at this as an advantage.
Finally, your credit score will remain the same as long as you continue to make payments on your student loan consolidation. You should look at this as an advantage.
In the end, the disadvantages are none. The advantages can be: taking control of your finances, saving money and paying on time, avoiding late and missed payments, and avoiding having to file bankruptcy.