| |
| The Re-Consolidation Issue on Student Debt |
|
| Once student debt is consolidated, you may wonder whether it is possible to re-consolidate it again if you can’t cope with the terms of your current loan or if there is any additional debt that you’ve acquired. The re-consolidation issue has no simple explanation and some clarification is needed as regards to the type of debt that can be re-consolidated. |
|
| A Federal student loan can be consolidated solely because the variable interest rate can be locked and that constitutes consolidation of the loan. Also, several federal student loans can be consolidated into a single loan with a fixed rate too. |
|
| When it comes to private loans, when processed alone, a private student loan can be refinanced but not consolidated because the interest rate won’t be locked but modified along with the rest of the loan terms (even if the new interest rate is fixed and the previous one was variable).
|
|
Re-consolidating
However, further consolidation requires both, on federal loans and on private student loans, at least the adding of an extra loan in order for consolidation to be achieved. Thus, re-consolidation requires an additional loan whether it is federal student debt or private student debt. |
|
| For instance: you may have an outstanding federal student loan balance of $30,000 with a variable rate currently at 6% APR. You may think that that’s a good rate and decide to lock it by resorting to federal student loan consolidation. From now on you’ll have to repay a $30,000 loan with a fixed rate at 6% APR. The only way for re-consolidation to be possible is if you had taken another loan. Thus, an extra loan of $10,000 could be consolidated with the fixed rate $30,000 loan into a single fixed rate $40,000 loan. |
|
| The same example is applicable to private student debt. However, private student debt can be consolidated as many times as you want. Some may object that, as explained above, if there is a single loan, the correct term is refinancing. However, private debt generates more easily and thus people usually combine different debts into a private debt consolidation program that negotiates debt altogether. |
|
The Income-Spending Issue that Can Lead To Consolidation Failure
Usually people consolidate their debt not because they want to be smart borrowers and pay less for financing. They actually resort to consolidation when they can no longer afford the monthly payments on their debt or when affording them implies too many sacrifices. This can lead to the failure of the purpose of debt consolidation if the true source of the problem is not resolved. |
|
| Overspending is the cause of most debt accumulation problems. If by consolidating your debt you reduce your spending to a reasonable state, you need to make sure not to incur in more debt that will again jeopardize your repayment ability. And even if you don’t incur in more debt, you need to keep your spending at bay for the same reasons. |
|
 |
|
