College loans are some of the most flexible and consumer friendly loans available. Understanding how to use the process of consolidating student loans to your benefit can help you to save a great deal of money. Most people realize that consolidating college loans can help them to lower their monthly payments, but there are also plenty of added benefits such as improving credit rating and lowering debt to income ratio. Here we'll take a detailed look at 5 ways you can save money by refinancing student loans.
Your rates are locked in at today's low rates after consolidating college loan debt
Because the majority of student loans are variable rate loans, they are subject to constant fluctuation depending on the current interest rates set by the government. With today's college student loan consolidation rates, you can lock in a low fixed interest rate. Because the rate is fixed after consolidating college loans, there are never any surprises when the first bill arrives after the yearly rate adjustment.
For many years, student loan rates remained at record lows. On July 1st 2006, rates increased significantly as a result of a government plan to reduce the federal deficit, but those who didn't refinance by July 1st 2006 can still save a lot of money each month by consolidating college loans. After consolidating student loans, the balance can be repaid over a longer period of time, reducing monthly payments by as much as 60%.
You can receive additional interest rate reductions through college debt consolidation
When consolidating student loans, you not only enjoy a fixed interest rate but you can also earn additional interest rate reductions offered by the lender that consolidates your college loans. Different lenders offer different types and amounts of incentive plans, and by knowing what to look for, you can save yourself a great deal of money above and beyond the already low consolidation rate.
ScholarPoint offers is customers a full 1.5% interest rate reduction, one of the most competitive savings incentive offers in the industry. The majority of incentives are offered to customers for making on-time payments and for having payments directly debited from their account - something most people do anyway!
Improve your credit score by consolidating college loans
Many students take out numerous loans throughout their college years. A student that takes out just one subsidized and one unsubsidized student loan every semester will accumulate 16 different loans on their credit report over the course of four years. While numerous loans are a benefit when it comes to paying for college, they can really drag down a credit score after college.
When consolidating education loans, all of these open loans are closed and replaced with one simple loan for the entire balance. After consolidating college loans, you will also have a much lower monthly payment, thus reducing your debt to income ratio.
Reduce debt to income ratio by refinancing college loans
Refinancing student loans can shave as much as 52% off of your monthly payment by extending the repayment period. This can make a huge difference in your cash flow each month. When creditors consider whether or not to lend you money, they will consider your debt to income ratio, which is the amount of income coming in compared with the amount paid toward bills each month.
A typical student with a $300 per month student loan payment can save as much as $200 per month by consolidating student loans. This savings can certainly make the difference between securing a loan for a car or other necessities. A favorable debt to income ratio can also help you to secure lower interest rates on new lines of credit which can literally save you thousands of dollars over a lifetime.
Reduce dependence on high interest debts by consolidating student loans
Many young professionals just out of college turn to high interest credit cards to help them get through the period where expenses are high and their careers are just ramping up. The average college student carries 6 credit cards with a combined balance of around $2100. These high interest credit card debts can really put a strain on your finances and limit your capacity for getting 'good' credit.
By consolidating student loans, borrowers can free up several hundred dollars in disposable income and reduce dependence on high interest credit cards. The savings can be used to pay off high interest credit card debts accrued during college. Paying off just $200 per month above the minimum could more than pay off the average college student's credit card balance in just one year.
College loan consolidation is simple and extremely fast now thanks to the internet. By consolidating student loans today, you could save yourself several hundred dollars by the time you make your next loan payment.
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