Pros and cons of consolidating student debt
The new loan, called the “debt consolidation loan” is equal to the amount of all the loans which were consolidated, and its interest rate may be either higher or lower than the rates on those old loans. They’ve muddied the water when it comes to this topic, and the result is that many companies who offer debt settlement or debt management programs call themselves debt consolidation companies.
Unlike debt settlement and debt management, however, debt consolidation does not entail negotiating with your creditors to reduce your debt amount or change your payment terms.
When it comes to certain federal student loans, there is the federal consolidation loan program.
Here are the downsides of debt consolidation, in general: Although all debt consolidation works in largely the same way, there are several different methods you can use that do the same thing.
The different methods of debt consolidation have benefits and risks associated with each specific option, so it’s important to understand these so you can decide which way is the right way to consolidate for you.
They temporarily save interest, but they don’t change the habits that got them into debt in the first place. You max out a credit line on one side to pay off all your other debts, but then find yourself with a new stack of other debts that you now cannot pay.
As risky as debt consolidation can be, it does pay off if you can be disciplined and work your debt payoff plan.