Debt often has a habit of expanding. Auto loans, medical bills, credit card debt, and student loan debt can add up, with each taking their monthly share of your income.
Today, most American’s (about 80 percent) live with debt, and that means they’re (hopefully) making regular payments to a variety of entities, each of which sets their own rates, terms, due dates, and repayment options.
That can quickly become overwhelming with a lot of dates to remember, bills to send, and in some cases, unnecessary interest accrued. It can also take a significant toll on your ability to pay for necessities like food, shelter, and utilities.
To make debt repayment easier, both administratively and financially, many turn to student loan debt consolidation as a viable option. And if student loans are included in your list of monthly payments, you may be wondering if you can consolidate that debt with your other debt.
In short, the answer is yes, sometimes you can consolidate student debt with other types of debt.
Should you do it? Well, that depends.
Things to Consider Before You Consolidate Your Debt
When it comes to student debt, “consolidation” can mean a few things depending on the type of loan(s) you plan on consolidating.
With regards to federal loans, it often means rolling all eligible federal loans into one loan via a Direct Consolidation Loan. The new interest rate will be the weighted average of all your federal loan rates rounded up to the nearest eighth of a percent.
Often times, this will enable you to utilize or remain enrolled in federal repayment plans, such as income-driven plans. It will also allow you to benefit from federal protections that can pause or lower payments in the case of significant financial changes.
Conversely, if you want to consolidate private student loans or private and federal loans together, then your only option is private student loan consolidation/refinancing. In this case, a private lender will pay off your old loans and issue you a new private student loan with new terms.
In this case, your “creditworthiness” will determine the interest rate and terms you secure on the new consolidated loan. Ideally, this rate is lower than your original average rate (private and federal). However, once federal loans are refinanced with a private lender, you lose many of the protections and repayment plans offered to federal borrowers – such as income-driven repayment plans, forgiveness eligibility, and deferment and forbearance protections.
Ways to Consolidate Your Student Loans With Other Debt
Student debt consolidation only includes loans of that nature, and as such, those programs won’t include personal debt. However, those who wish to consolidate student debt and personal debt do have options. Here are a few of them:
- Balance Transfer Credit Card: This type of credit card typically offers those that meet the credit requirements the opportunity to transfer debt for a low or zero-percent interest rate for a certain amount of time (typically 18 months or less).
That’s enticing, and if you can pay down the debt before the real interest kicks in, it may be an option. However, the risks often outweigh the rewards as interest rates can spike up (15 percent – 25 percent on average), which can quickly negate any benefits and place you further in debt.
It’s also worth noting that student debt and credit card debt aren’t seen equally in the eyes of credit reporting agencies. Both impact your score, but high revolving debt, like that from a credit card can do a lot more damage – especially when the interest rates are often three or 4 times as high.
- Home Equity Loan: If you have enough equity in your home, a home equity loan may, on the surface, seem like a good way to pay down debt, including student loan.
Unfortunately, if you’re using a home equity loan to combine debt, you’re putting your home (and your family) at risk. If you can’t make your payments, you run the risk of losing your home to foreclosure. Student loan debt is unsecured, meaning even if you can’t make payments, they can’t go after things like your home or car.
If you are considering a home equity loan, be sure that you will be able to pay it off before agreeing.
- Personal Loan: Though it differs by lender, personal loans are typically more flexible when it comes to what you can use them for, which is a plus if you want to combine personal and student debt. However, in many ways, the decision comes down to the rates and terms.
Federal student loan rates currently range between 4.45 percent and 7 percent, with private ones extending a bit beyond that at times. If your credit falls is excellent, then you may find the rates to be comparable or better than those attached to student loans, though it is unlikely. If your credit is not excellent, you’ll likely find you will only be eligible for a personal loan with double digit interest rates, making a personal loan a poor choice.
Does It Make Sense to Just Refinance Your Student Loans?
In many ways, consolidating debt can be beneficial. But sometimes, adding student debt to that equation can be less beneficial than just leaving them as they are.
Before you consolidate your student and personal debt, you may want to consider refinancing your student loans, which can lead to lower rates, more manageable monthly payments, or more desirable repayment terms. Then, you may consider consolidating your other kinds of debt together (non-student loan debt) to simply repayment.
Consolidating debt can make repayment easier but it’s not always the best option when it comes student and personal debt. If you do choose to consolidate your personal and student loan debt, be sure to thoroughly review all the pros and cons before you make a decision and check what your new interest rate will be. Once consolidated, you won’t have the opportunity to reverse your decision.
Author: Jeff Gitlen
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