Posts tagged: low interest debt consolidation loan

Low Interest Debt Consolidation Loans – Educate Yourself Thoroughly

Human beings gravitate toward anything we perceive to be faster and easier. We like to simplify, streamline, and automate. It’s true of every aspect of our lives, and it’s especially true with how many of us want to deal with our outstanding debt. Many people who have multiple credit card balances, car payments, student loans, etc find it extremely appealing to have somebody else do the dirty work of dealing with our debt – so we go hunting for low interest debt consolidation loans.

On the surface, a low interest debt consolidation seems like it would be an absolute heaven-send. We get our ugly, disorganized high interest loans and their inconvenient payments turned into one smooth-sailing payment that we’re told is extremely low interest relative to what we’re paying now.

Here’s the problem – if you’re hunting for a debt consolidation with a low interest rate, it probably means you’re dealing with high interest rates – and several of them. You know what that means? It means you’re a credit risk. Somebody has to pay the piper, and your creditors aren’t just going to take massive losses just because your debt consolidation company asks them to. So while all the advertising may say that you’re going to be getting a killer low rate, read the fine print. You might be getting some kind of introductory rate and soon after it will be bumped up – sometimes as high as credit card rates.

Another thing I recently learned about these supposed debt consolidation loans with low interest is they often carry fees; fees that can run as high as 10% of the monthly payment on the consolidation loan. So if they get you to a $500 payment, you’re looking at $50 per month just for the privilege of having them receive a payment from you and then send it on to your creditors. By the way, they’re getting it on the other side as well. Your creditors, so excited to be receiving payments consistently, will often pay the consolidation provider an additional 10% to 15% fee. Suddenly it seems like this would be a good business to be in, but I’m not so sure it’s something where you want to be the client.

What you might not realize is that there are plenty of ways for you to take yourself through the exact same process that any company could as far as making your payments and paying your highest interest balances first. You’re very likely paying for something you could do yourself, and by doing it yourself you’d probably learn valuable lessons about how to avoid ever being in this kind of debt situation again.

Low Interest Student Loan Consolidation – Fact and Fiction

As the cost of a university education climbs relative to the amount students can borrow through federally subsidized programs, it’s becoming more and more common for students to use a mix of federal and private student loans to finance their education. The availability of private student loans can be viewed as a positive in that it allows more people to complete their education, but there are some real negatives to private education financing as well.

My biggest concern, as one who got out of school relatively recently, is that student loans are universally thought to carry low interest rates, but that’s not necessarily true with private student loans, whose interest rates are determined by the lenders. The idea that all student loans are low interest comes from the fact the government controls the amount of interest charged on federal student loans. We need to make sure that distinction is clear in the mind of the average student, because I’m afraid many students take on private financing they might not need based on the idea that they’ll be able to go through a low interest student loan consolidation with all their loans. That’s obviously not the case, and if these kids aren’t careful they’ll end up with payments that cripple them financially just as they’re trying to establish themselves in the professional world.

If you’re a student, or if you’re researching the subject on your child’s behalf, you really need to understand why a student loan consolidation with low interest is rarely possible with private loans.

With a private student loan consolidation, all that’s really taking place is that you’re combining your private loans into a single balance with one payment, one interest rate, and one repayment period. The interest rate on that single loan may or may not be lower than the rates you were all ready paying with your unconsolidated loans. It will completely depend on your credit score and the offer the lender makes you. The only way you’ll see your payment go down after the consolidation is complete is if the lender does happen to offer a lower rate or if you restructure the repayment period so the loan will be repaid over a longer period of time. That kind of restructuring obviously won’t mean you’re paying less interest – you’ll actually be paying more because you’re dragging the loan out over more years.

Here are some general ideas as far as the terms of the loans you’ll get through a private consolidation:

  • 15 to 30 year maximum repayment terms.
  • interest rates between Prime+1% and Prime+6% (not so low really).
  • minimum balances of $5,000 to $10,000 to qualify for consolidation.
  • maximum balances of $100,000 to $300,000.

It really pays to manage your money well while in school; the payments on these kinds of loans will be relatively steep. If you’re the kind of person that wants to follow your passion in your career, instead of having to chase a big paycheck, I’d really encourage you to absolutely minimize the amount you borrow.