Private Student Loans With Bad Credit: The Benefit of Consolidation

Students do not have it easy, with the weight of debt accrued while studying the single biggest worry for them. Taking control of the debt is considered crucial if they are to clear the loans taken out and get on with their lives. The best way to accomplish this is by refinancing private student loans with bad credit.

Refinancing, or consolidating, a loan is all about restructuring existing loans, lightening the financial burden and presenting the borrowers with a chance to reap some benefits. There are many consolidation programs to choose from, and while the terms can vary, repaying college debts in this way can be hugely beneficial.

The key factor, however, is that the financial troubles are eased. That is the purpose of the loan, and there may need to be some effort taken to convince lenders that the student loan will be paid back in full. When that looks more difficult than expected, then a consolidation program can make the difference.

How Consolidation Programs Work
There is no doubt that private student loans with bad credit can be quite expensive, especially when four or more loans are concurrent. However, consolidation can ease the pressure, and helps the borrower develop a much more affordable repayment structure and ultimately, see them avoid bankruptcy.

Consolidation means that individual loans are bought out with one consolidation loan. Because each loan has different terms and conditions, replacing them with one single debt complete with a single interest rate, makes the situation much more manageable. Repaying college debt, therefore, becomes easier too.

What is more, with the student loans repaid in full, the credit score of the borrower is increased, meaning that future loans can be secured on good terms too. It is a win-win situation, in effect.

Terms to Expect
The terms of any financial agreement are extremely important, and it is no different when it comes to consolidating private student loans with bad credit. The best terms mean the biggest savings can be made, but there are aspects that need to be considered to maximize the benefit. Principal amongst them is where the individual loans are private or federal loans.
The reason that this is important is that these loan types do not mix well in a consolidation program. A private consolidation program, for example, is supposed to slash the debt with improved interest rates and an extended loan term, but federal loans already boast low interest so the effect is not the same. Repaying college debts from federal loans needs a different program.

Of course, in both cases consolidation is the best course of action, with the task of clearing the debt from numerous student loans made all the more manageable.

Qualifying for a Program
Qualifying for a consolidation program is not complicated, but there are usually some compromises students will have to make. Any compromises are worth it, of course, as clearing private student loans with bad credit takes a huge weight off ones shoulders.

Normal conditions for federal consolidation programs include that the student must be significantly in debt, normally to a minimum of $10,000. But when repaying college debts created by private loans, the matter is different since the transaction is designed for the lender to make a profit.
That makes it easier to get approved, and while the interest rate is high the longer term of the consolidation loan makes the monthly repayments low. Once approval comes through, the student loan can be cleared for good.

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Not Paying Bills On Time Can Cost You Hundreds Of Thousands Of Dollars

A lot of people have missed at least one bill payment in their life. If this does not happen frequently then all it may cost is a late fee. If a person keeps on missing bill payments then it will cost lot more than a nominal fee. Not paying your bills on-time can affect the charges and fees you will pay on borrowed money thus costing you hundreds of thousands of dollars over your lifetime.

A typical household will have bills for services like electricity, gas, telephone, cable, internet, cell phone, credit cards, etc. Most service providers check the customer’s credit history before starting the service and keep the customer’s social security number on the file. If a customer does not pay the bill on time, the service provider reports the late payment to the credit reporting agencies such as Experian, Transunion, and Equifax. These agencies calculate a consumer’s credit score based on such data. Repeated late payments results in lowering of the score of the consumer.
Credit score determines the interest rate a consumer pays on loans like a car loan, home mortgage, credit card, etc. A typical low to mid-range home costs about $200,000. A traditional mortgage being 80% of home value is $160,000. Currently, the rate for 30 year mortgage is about 4% for people with excellent credit history. A lower credit score will cause a home buyer to pay 5% rate. Total interest paid at 4% on a $160,000 mortgage for 30 years is $114,991.21 and that at 5% is $149,209.25. So, even a 1% differential causes an additional payment of $34,218.04 in interest charges. Now, depending on credit score, the mortgage rate can go even higher resulting in even higher interest charges.

Similarly, a $15,000 car loan at 4% interest rate for 5 years cost about $1575 in interest payments. The same car loan at 6% APR for 5 years will cost about $2400 in interest charges. So over the period of 5 years, a car loan can cost more than $800 more in finance charges. Not only does the car cost more but the auto insurance also costs more. Insurance companies see a person with good credit history as a responsible driver and conversely, a person with lower score as a rough driver. This can cost a driver anywhere from $100-$300 annually.

We can safely deduce that maintaining a high credit score makes borrowing money much cheaper. Not paying bills on time will result in lower credit score and will cost a consumer much higher in long run. If you fall short on cash and cannot borrow money from traditional sources, it is recommended to get a payday loan from direct payday lenders and not brokers.