We’ve all received those mailings inviting us to consolidate all of our credit card debt into one low-interest credit card or to get a home equity or other loan to consolidate our debts. The temptation to consolidate debts so that you don’t have to worry about making a multitude of payments every month can be irresistible, particularly if you’re told that you can save money on fees and interest.
However, if your debt includes federal student loans, which for many people it does, including that in your debt consolidation can be a costly mistake.
First, it’s essential to compare the interest rate on your student loans with what you’ll be paying on a personal loan. The difference can be staggering, and can cost you tens of thousands of dollars, if not more, in extra interest.
Further, there are some perks that come with federal student loans. For example, there are options for deferring payments and even having part of your loan forgiven. There’s also the option of an income-driven repayment plan. These options can all help borrowers who are finding their student loans unmanageable.
There are also tax deductions available to those with federal student loans. The Internal Revenue Service (IRS) allows taxpayers deduct as much as $2,500 worth of student loan interest payments.
If your debt is becoming unmanageable, it’s wise to discuss your options for handling it with legal and financial professionals. All debt is different. Before you throw it all into one pot, find out what the advantages and disadvantages of doing that are for each type of debt you have. By getting experienced guidance, you may save yourself far more money than it costs you to get worthwhile advice.
Source: Forbes, “5 Scary Reasons Why You Shouldn’t Consolidate Your Household Debt,” Andrew Josuweit, Aug. 03, 2017