3 Methods of Consolidating Student Loans
Consolidating your student loans may be one way for you to save money on your interest payments and perhaps even pay off your student loans even faster. There are essentially three methods to go doing this. I want to highlight these methods below.
Consolidate with another student loan
The most obvious method is to consolidate your student loan with another student loan. If all your student loans are from one company, you must consolidate with that company. If you have loans from different companies, you can shop around. There are a couple of things to be aware of when you consolidate you student loans with another student loan.
1. Consolidation can affect your ability to get deferment on your student loans. Deferment is one method which you can delay your student loan payments. You can defer loans if you and your spouse are disabled, become unemployed, go back to school (resulting in more loans!), work in law enforcement or joining the peace corp. If you consolidate your loans, you may disqualify yourself from future deferments.
2. Some perkins loans has clause that allows you to cancel your loans under certain circumstances. Once again, consolidating your loans may result in you losing this option.
Consolidate with a HEL or HELOC
Consolidating your student loan with either a home equity loan or home equity line of credit is another viable alternative. The caveat to this method is that if you miss payments, you may risk losing your home to foreclosure. Whether you choose this method depends on the rate you are getting versus your existing student loan or your new consolidated student loan. You also have to decide whether to get a HEL or a HELOC. A HEL has a fixed interest rate whereas the HELOC has an adjustable rate. For the most parts, a HEL is preferred because you lock in a fixed rate.
Consolidate with a 0% APR Credit Card
Another alternative is to do the consolidate your student loan via a zero percent balance transfer credit card. You should look into this alternative if you do not own your home and/or you have a very good credit score. Apply for a 0% APR Credit Card, and you could potentially save a lot on interest for the introductory period. Do the math and see if this will work for you. At the moment, the best card for doing a balance transfer is the Platinum Consumer Card with Cash Back OR Travel Rewards from Advanta, which has a 0% introductory offer for 15 months (the longest offer period in the market today).