Saving money is the reason why people consolidate their loans in most cases. So it makes sense to discover the best money-saving tips available when consolidating your student loans.
To prevent making mistakes when consolidating student loans, please use these three money-saving tips to their fullest. If you do, you will find the best deal, pay the least amount of interest, and ultimately pay off your student loans much faster.
- Shop Around for the Best Student Loan Consolidation Options
When it comes to student loan consolidation, the lower interest rate you have, the less you’ll end up paying during the life of your student loan. The beauty of a consolidated loan is the interest rate is going to be fixed, so you’ll never have to worry about variable interest rates again in this regard.
Many consolidation programs provide a wide array of benefits that help students lower their interest rate. The two biggest benefits provided by programs offering student loan consolidation are direct withdrawal and on time payment.
With on time payment, you’ll receive a lower interest rate if you consecutively make payments on time for a specific amount of months stipulated by the consolidation program.
An example is you consolidate your student loan at a 5% interest rate. If you consecutively pay your loan on time for 24 months, they will drop the interest rate to 3.75%. So you’ll end up saving 1.25% in interest, which is a major money saver over the long term.
Direct withdrawal is an even better and easier benefit. If you set up automatic withdrawals from your bank your lender will provide an interest rate reduction. Generally speaking, the reduced rate is anywhere around .25% to .50% less than your current interest rate.
- Paying Your Student Loans Back As Quickly As Possible
The second tip might seem obvious, but the faster you pay back your student loans, the less money you’ll spend over the long run. This is the best way to go if you’re looking to accumulate major money savings.
To make this happen, you should plan to pay more than your monthly minimums as often as possible. By going this route, you’ll have an easier time getting out of student loan debt sooner rather than later.
As an example, let’s say you currently owe $50,000 in student loans. The interest rate on the student loans is 5.5%.
As the student looks into consolidating his student loan, he discovers that there is a 30 year repayment plan and a 10 year repayment plan. If he chooses the 30 year repayment term, he’ll end up paying $120,000 if he pays the minimum for 30 years. With the 10 year repayment plan, the student will pay $90,000 if he only pays the minimum.
Do you see the difference? You’ll save $30,000 by taking the shorter repayment plan. If you decide to pay it off even faster, you could save much more money in the end.
- Variable Rate Stafford Loan Consolidation
According to Studentloansconsolidation.co, a website answering the question ‘what is the best bank for student loans consolidation’, “Students who need to create a long-term plan for their financial goals may consider the benefits of consolidating or refinancing existing student loans.“
After graduation, you should take no longer than six months to consolidate your Stafford student loans. If they have variable interest rates, within six months of graduating your rate will increase by 0.6%.
So your best bet is to consolidate to prevent this from happening. You don’t want to needlessly spend more money because you weren’t paying attention.
Please follow these three money-saving tips when consolidating student loans.
You may also want to consider checking on student loan refinancing companies for more information.
Feeling Clever? Join our newsletter!
Subscribe to get the latest from "Clever Dude."