What Doesn't Meet the Eye in Student Loan Consolidation
By Surajit Sen Sharma
Student loan consolidation saves more of my life than it saves me money. Of course, I am not as lucky as those who managed to raise their credit ratings before going for consolidation. For those lucky few, I guess, student loan consolidation is really worth it if the only considered factor if the amount saved on repayment. For the rest, the general view is that student loan consolidation means greater payout in the long run in exchange for just three benefits:
lower regular payments
fewer hassles in terms of dealing with a single lender
a fixed interest rate
However, almost everybody I knew went in for consolidation of his or her student loans in spite of that "greater payment in the long-run" tag. Now that I appreciate the true benefits of consolidation, that "greater payment" tag seems more like a scary children's story than anything else.
For a start, consider how much you really are paying in the long-run when the rate of dollar inflation is hovering close to or goes higher than your locked-in fixed interest rate. Long-term loans with locked-in interest rates are good bargains in any sector if you manage to negotiate an interest rate tolerably close to that of inflation. While you know what you are going to pay every year, no one in the world can predict the inflation rate for the next 20 years. But they'll say one thing for sure - inflation may drop for short terms but it's not going to go away, and the chances are that it will become more acute with the passage of time.
Loan consolidation initially appealed to me for lowering my monthly payments, but I was really not prepared for the way my credit rating began to improve as an effect to that. Lower monthly payments have more to them than meets the eye.
The difference made to my cash flow each month caused by student loan consolidation reduced by debt-income ratio so much that now I can really think of buying that new car. Previously, the car loan people were turned off by my high debt-income ratio, and all those different loan accounts with variable interest rates. Now, everything has changed for the better. Best of all, I need to use those high interest credit cards less than ever before. In fact, I am on my way to paying off all those high interest credit card debts that hang over my head. The almost 50% reduction in my monthly student loan payments is helping me towards financial freedom. My credit history is just getting better and better.
In life, there is no alternative to building a healthy financial base and strong FICO score. A FICO score determines your creditworthiness to a potential financer. The score takes into account both present and past financial situations to predict future chances of your behavior regarding repayment. Usually 35% of the FICO score depends upon payment history; 30% of the score depends upon existing amounts of debt; 10% depends upon the length of credit history; another 10% depends upon the types of existent loans, and 15% depends on other miscellaneous factors. Student loan consolidation is helping me to improve upon each factor that a FICO score takes into account. Today, I can look forward to a nice home, a desirable car, and a quality life free of unnecessary worries.
All in all, student loan consolidation has turned out to be a better bargain for me than I had hoped for. And if you think this is just promotional talk, forget it. I'm not asking you to consolidate your student loans; I'm asking you to use your brain.
Article Title : What Doesn’t Meet the Eye in Student Loan Consolidation
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