Why should you consolidate your loans?
Before we move to answer this question, let us have a brief look at what consolidation means and what are the essential steps to consolidation.
What is Consolidation?
Let us explain this process using 3 characters; Anne, Mary and Rachel. Anne is a student who is a borrower of a direct loan and few other educational loans. Mary is the lender of the federal agent who has lent money to Anne. Rachel represents the US Department of Education. Anne has $1000 as her total borrowed amount from Mary. This is the sum of all the loans that has been borrowed from Mary.
Under the consolidation process, Anne consolidates all her loans with Rachel. Rachel pays the loan amount to Mary and provides Anne with a new loan and a new interest rate. Anne does this through two main processes:
The application process which consists of filling up an application form and a promissory note and submission of it either online or through mail
Verification of the loan which needs to be done by the loan holder by filling up few documents and returning it to the Department of Education within a stipulated time.
The next logical question that follows is ‘what is the advantage of this consolidation?’ process which brings us to the topic of our discussion.
Here are some advantages of consolidating your loan:
One monthly payment per lender
With just one payment to make for the borrower, managing his debt along with his income is easier. Imagine a situation when Anne has to pay three different amounts for three different loans at three separate times. Confusing, isn’t it? Consolidation removes this problem.
Repayment options are flexible
You need not necessarily pay a fixed amount as under the standard repayment plan. Here, the repayment is as per our income and size of the family. Borrowers are also given the flexibility to switch between plans which are not possible in the case of a standard loan. In addition, the monthly payments are also drastically reduced or can be reduced by choosing a suitable plan.
No bar on the loan amount to qualify for consolidation
Translated in to layman’s language, it just means that you do not need to have a loan of a million dollars for consolidation. Even if you wish to consolidate it for a loan of 100 dollars, you can do it. Plus, the consolidation is free!
Deferment options are flexible
Suppose you have exhausted the current set of deferment options, you can choose a new, more flexible set.
