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Student Loan Consolidation, look this gift horse in the mouth. Part II
By Ian McAllister
Student loan consolidation is excellent - for for some people. Spot the hidden trap that could ruin your life... a clever animal can steal from a trap without being caught!
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* Part I Don't get into debt. Ways to avoid it.
* Part II This article
* Part III Idea beats consolidation and creates a winning mindset.
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Part II
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Imagine two people
Each has a consolidation debt of $100 000. The born loser will soon have borrowed more. The investor uses the consolidation as a springboard to become a millionaire.
What's different between them? The mindset, and only the mindset. Get the right mindset.
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The big trap
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Have you a strong willpower? Will you go on a spending spree and owe $5000 on each card tomorrow? A consolidation is not for you. Read Part III of this article.
Have you the will power to master your finances? Combine consolidation with Part III.
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What is Student Loan Consolidation?
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You transfer all your existing loans to one low-interest account.
What's in consolidation for you?
* If you have Stafford loans in the USA, you’ll have a grace period of six months after graduation to take out a consolidation.
* Interest rates are lower
* Easier to remember payment dates with one loan
* Improved credit rating
Credit cards might charge 20% interest. Wouldn't a consolidation at 5% be better?
Look for extra discounts on consolidation during the grace period. Do you get an extra discount after 2 years of prompt payments.
Do your homework properly. Were you only paying 3% fixed interest on your Stafford loans and interest rates have gone up to 8% variable rate on your consolidation? How high could the rates go? If you get a fixed rate consolidation, and new consolidations fall to 3%?
Computers calculate your credit rating. Suppose you took out a subsidised and an unsubsidised Stafford loan for each of four years. Computers can't really think. They see that you have 8 long-term loans and never paid back a single cent. You’re obviously a very bad credit risk before your consolidation!
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After your consolidation computers see that you've only 1 loan and you're making regular payments. They give you an excellent credit rating. Don't spoil it with new credit card debts.
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Avoiding student loans
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In part 1 you read about vital life skills that mean lower student loans for consolidation, or even none. You can make your money go twice as far, which means that you'll effectively be twice as rich, and the IRS can't touch you for it.
Without these life skills, you'll be helpless when you suddenly have to pay for food and lodgings, credit card, car loan, mortgage, health... it's never-ending! Many students can't handle it. Part III will help you even if you have a consolidation.
Have you decided on consolidation?
* Check how much they will lend
* Can you consolidate your other debts... credit card and car loan?
* Will you need proof of income?
* Can you choose between fixed and variable interest?
* Are there pre-payment penalties? Avoid them like the plague!
* What are the penalties if you default? If you are unemployed or lack self-discipline you are likely to default.
* What other loans must you get - mortgage, kid's schooling?
Avoid lenders that make you start repayments of your consolidation the day after the grace period. Check for special incentives. A 1% discount after 2 years regular payments may not sound like much, but it adds up over time.
Negotiate. Lenders are eager to lend you money, however much they bluff. They are legally allowed to lend 35 times as much money as they have, and they make no profit until they lend it.
"No start-up costs" may be good, but low interest rates and absence of prepayment penalties for your consolidation are better.
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What's in Part III
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A better alternative to consolidation?
* Build self discipline.
* How will interest rates for consolidation change next 20 years? Don't know? Then consolidation might not be the best bargain.
* You’ll be in control... not at the mercy of consolidation providers.
Don't be a loan addict all your life. The ideas in
part III were used by an Australian to become a millionaire.
You've 4 years study skills. Read the full articles then make these skills your own.
Student Loan (expanded part I)
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