What is debt consolidation?

Thorugh various programs offered on the internet, you may be able to consolidate your outstanding loans together into one new loan. A consolidation loan would payoff your individual loans by combining their balances into a single new loan. This will give you one loan, one monthly payment, one lender.

The purpose of loan consolidation is to:

• Simplify repayment so you have only one monthly payment versus several
• Increase the length of time you have to repay your loan . . . up to 30 years
• Lower your monthly payments, and
• Decrease the risk of loan default by establishing manageable loan payments.

Borrower Eligibility: At the time of application for a consolidation loan, you must be in a grace period or repayment status on all loans being consolidated. If you have delinquent or defaulted loans, they may be eligible for loan consolidation.

Interest Charges:  The interest rate on your consolidation loan will be a fixed rate.  The rate is determined by the weighted average of all the loans you are consolidating, rounded up to the nearest 1/8th of one whole percent or a maximum of 8.25 percent, whichever is less. You will pay more interest if the length of time you have to repay you loan is extended.  Once your financial situation improves, you may want to increase your monthly payment amount or make extra payments on your loan.  There is no penalty for prepaying your loan.

Lender Selection:  If all your loans are with one lender (or loan holder), your consolidation application must be made with that loan holder.  If you are unable to obtain a consolidation loan through that loan holder or they decline to provide you with an income-sensitive repayment schedule upon your request, then you can apply for consolidation with any eligible lender.

Be sure to clearly state your lender preference when you request the consolidation application.  This will help you obtain application forms with pre-printed lender information, if available.

General Information:

Married couples may consolidate their individual loans into one consolidation loan.  However, to do so, you both must agree to be held jointly and severally liable for repayment of the entire amount due.  The amount due is without regard to the amount of your individual indebtedness and any future change in your marital status.  This means you may be required to pay the entire amount due if your spouse is unable or refuses to pay.

Loan consolidation may have disadvantages.  When you lengthen the repayment period of your loan, more interest is added to your debt.  This extra interest increases the total amount due on the loan.  You may also lose eligibility for certain types of deferments after you consolidate.  Before applying, consult with your lender for specific details on the Federal Consolidation Loan Program to determine if this type of loan would be beneficial for you. Home