Student loan consolidation is an important process that takes many student loans that you have accumulated and are paying on, and involves refinancing those into a bigger debt. You have to pay only one interest and make payments to just one lender. A lot of students opt for student loan consolidation to escape huge loan debt that can put them in a financial ruin. Consolidating private student loans is a great way to escape debt for lots of students who have graduated recently or are paying student loans for a long time. Find out about 3 of the important preparations that you need to make for loan consolidation purposes.
Figure your present interest rate
You will have to use an interest figure as a reference point while looking for help with consolidating private student loans. You will need the weighted average of the existing or current loan rates. For example, if you have 3 loans with 2.5%, 3% and 5% interest rates, you need to look at the loan documents to find out the amount that you owe on each loan. If you have 3 loans and you owe 50% amount on 2.5% rate, 30% on 3% interest rate and 20% on 5% interest rate, you need to multiply the percentage for each loan with its respective interest rate and add those together. This will make your equation look something like:
(50% x 2.5%) + (30% x 3%) + (20% x 5%) = Weighted Average Interest Rate.
Take your ideal repayment into account
Online calculators can help you make an immediate estimate on the payments. There are many loan calculators available online, and you need to use one to make calculations for consolidating private student loans. Enter all the current outstanding balances and obtain a total of all the loans. Then, you have to enter an interest rate that you will be comfortable with. Following that, enter the repayment periods – like 20 years, 25 years or 30 years. Once you put in the various figures, you can easily find how one has an effect on another as far as repayment is concerned.
It is a good idea to write down your estimations somewhere safe, so that you never forget your calculations or do not need to do them again.
Arrange your finances
It is important to look at your financial situation, and improve it as much as possible in order to avoid bad credit ratings and default. If you default on your student loan, there can be long term impact on your credit file. This can make the entire credit rating drop, which can have an impact on your ability in future to borrow any money for your personal expenses, home building and more.
It is also essential that you improve your FICO score, and make it over 600. It is best to have the score above 660. Keep in mind that with a score lower than 600, you will face a tough time looking for consolidation of your existing loans.