Student Loan Consolidation - Is it a Good Choice?

Hard times and an ailing economy have many people asking if consolidating their student loans is a good idea. You may wonder if it is going to look bad on your credit. Loan consolidation is simply a way to manage student loan debt and is not the same as defaulting or not paying. So, no, consolidation is not considered bad on your credit.

Most people that think it is a bad move for credit reasons think this because lately other "debt consolidation" advertisements have people inquiring about getting rid of some of their debt. These services do not only consolidate debt, but try to get debt "forgiven" by lenders, which does have a negative impact on your credit rating.

Student loan consolidation is different. You can even "consolidate" one student loan or private student loan. Consolidation generally refers to combining more than one debt into one new loan, but it basically student loan consolidation is just a new loan. You can consolidate one student loan into a new one, extending the term and lowering payments, getting the same benefits as if you had consolidated more than one student loan.

Consolidation can actually look good on your credit because it will show the loans that you consolidated as "paid". Paying off loans in full can be good for your credit score. Plus, when you consolidate, you no longer have multiple payments due throughout the month. You are left with only one payment. This payment is a set amount due on the same date each month. Because things are simplified, you are far less likely to make a late payment or miss a payment, which looks really bad on your credit. Because the payment is lower, you are more likely to be able to afford the payment, which also makes for a better credit score.

You may be able to take advantage of the bad economy right now. Consolidation loan interest rates have been being cut. You can get some great interest rates during the country's financial time of need. Consolidation loans also generally have fewer rules attached than your original student loans or private student loans did. You could enjoy such benefits as no prepayment penalty, one payment per month, lower payments, lower interest rate and other freedoms not allowed by your student loans.

Some lenders are offering other enticements such as graduation bonuses, career choice incentives, military benefits and deferment terms. You can easily compare consolidation loan benefits from many different lenders on web sites that offer student loans from a variety of sources.

About the Author: Evelyn Saunders, a retired teacher, is the editor for student-loans.net, a provider of student loans and information on how to get private student loans as well as consolidation.

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