Private loan consolidation doesn’t have to be a difficult process. There are several ways you can consolidate your loans, depending on the types of loans and your personal needs.
The easiest and cheapest way to consolidate student loans is to get a federal consolidation loan. The Higher Education Act created the loan consolidation programs that are in use today. There are two types: FFELs (Federal Family Education Loans) and the Direct Loan program. Your existing student loans are all paid off and a new, single loan is created.
The interest rate is oftentimes lower than that of your original loans. Additionally, the repayment time can be extended beyond the standard 10 years.
Private companies offer student loan consolidation, but you are almost always better off getting your student loans consolidated through the FSA.
Credit cards often carry interest rates that are higher than other forms of credit. By consolidating your existing credit card debt, you can lower the amount of interest that you’re currently paying. If you have a home equity line of credit available, use it to pay off your credit cards. You’ll lower your interest rate, and interest paid on home equity loans is oftentimes tax deductable (check with your accountant or tax attorney).
If you use a home equity line of credit to pay off your credit cards, don’t charge them back up again. The goal is to reduce your debt and reduce the amount of interest you are paying on your debt.
If you don’t have a home equity line of credit available, check with your bank about credit card consolidation loans. Many banks offer loans that are designed to consolidate and eliminate credit card debt. Again, the rate you receive on a consolidation loan should be lower than the rate your credit card(s) charge.
A third, and often overlooked option, is 0% introductory rate offers. If you have good credit, take advantage of 0% introductory rate credit card offers. When the introductory term expires, roll the balance onto a new card that is offering you a 0% introductory rate. By rolling your balances every 6 to 12 months you can achieve an effective annual percentage rate of zero percent.