Consolidating Debt

Refinancing and consolidation are terms that are often used interchangeably when it comes to debt, and while they are certainly similar, they mean different things.

Direct loan consolidation is a program offered by the federal government that allows you to combine your federal loans into a single loan in which the interest rate is a weighted average of all the loans you are consolidating. It typically doesn’t save you money, but offers simplification of payments, provides peace of mind where interest rates are concerned (it’s not based on credit score, and you can switch from a variable to a fixed rate), and allows you to keep your federal student loan benefits.

Refinancing is a program offered by private lenders and simply means taking out a new loan with better interest rates and/or terms to pay off an existing loan(s). It’s often used with home mortgages and can be a great option for your student loans, as well, since the interest rate is based on creditworthiness. With student loan refinancing, you can choose a term that fits your financial needs.

If you are employed with a steady income, making multiple monthly payments, don’t foresee needing federal loan benefits (such as student loan forgiveness after 10 years of public service work or income-based repayment options), and have a good credit score, refinancing may be the right fit for you. Other factors to consider are your debt-to-income ratio, whether you are up to date on your payments, and if you know a good lender.  

When you refinance your student loans, you are making fewer payments, which is easier to keep track of. With less money going toward your student loans, you’ll have more cash for other expenses or for savings. And while we’re talking savings, you’ll save money in interest by paying off your loans faster, not to mention locking in a lower rate (or switching to a variable rate, if that meets your current needs). Lastly, a lower monthly payment decreases your debt-to-income ratio, which can make it easier to qualify for a mortgage and other important credit needs.

You can be confident we’ll be with you every step of the way, offering up-to-the-minute information and support so that you can make the best decision for you — for right now and into your bright future.