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When is the Best Time to Consolidate Student Loans?
There’s no better time than the present to consolidate student loans. Consolidating or refinancing student loans can easily save borrowers up to 52% on their current loan payments, so most people are eager to consolidate as soon as possible.
Many students take out subsidized and unsubsidized Stafford loans each year at college – a total of 8 different loans, all bearing interest at a variable rate, and all appearing as open and unpaid lines of credit on credit reports. Many students also take out additional loans throughout their college years, such as Perkins loans and various industry-specific loans, further increasing the benefits of a single low-interest loan payment.
By consolidating your loans, you will take out a fixed rate loan to pay off all other unpredictable variable rate loans. The repayment term of a consolidated loan is longer, which means much lower monthly payments. For those fresh out of college and starting their careers, lower student loan repayments offer a surefire way to improve cash flow and reduce reliance on credit cards.
Unlike regular student loans, there is no deadline for consolidation, although consolidating at certain times of the year may result in more savings. For those planning ahead, the absolute best time to consolidate is during the six-month grace period after graduation. Refinancing student loans during this grace period means you commit to interest rates that are 0.6% lower than those available after the grace period ends.
The loan consolidation process can take several months, so it is essential to start the application processes soon after graduation. Don’t worry about sacrificing your grace period by applying early. For federal loan consolidations, you can enter the end date of your grace period so that the loan does not begin until that date.
The most important time to refinance in general is when you need to increase your cash flow and reduce or rearrange your monthly bills. Making high student loan payments and having just enough to pay only the minimum balance on high-interest credit cards just doesn’t make financial sense. Through consolidation, the average monthly loan payment of $350 can be reduced to around $165, freeing up an additional $185 per month to pay off high-interest debt.
If possible, save some money and become completely debt free. $185 saved per month over 5 years equals $11,000 to buy a vehicle, start a business, or use for a down payment on a home. Although the loan amount is longer, leveraging your payments to pay less when your career is young can give you the cash to start your life off on the right foot.
Any time is a good time to refinance student loans. Low fixed interest rates and longer repayment terms are a winning combination for anyone looking for a smarter way to manage their monthly budget.
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