Pros and cons of consolidating student debt

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While many Americans struggle to pay their credit card bills, a lot of them turn to businesses offering debt relief services.These are for-profit companies that say they can renegotiate what consumers owe or get their interest rates reduced.Private student loans cannot be included in a federal consolidation loan. Yet you may get socked with higher fees when using them, compared to traditional bank checking accounts where fees also are rising, according to a recent Consumer Reports study. The reason: You can’t spend more money than is on your card.In response to this growing business model, the FTC put together the Debt Relief Rules which took effect October of 2010.The regulations are very comprehensive and are aimed to curb deceptive and abusive practices associated with debt relief services offered by debt consolidation companies.Make a list of all your existing debt and check the small print, then factor any additional costs for repaying early into your sums.

You can consolidate loans even if you’re already in default.

In fact, consolidation is one good way to get out of default.

(To learn about other ways to get out of default on student loans, see Student Loans: Getting Out of Default.) A consolidation loan allows you to combine your federal student loans into a single loan with one monthly payment.

More difficult to deal with are the intangible factors which are related to knowing what sort of borrower you are.

Lumping all your debt into one place (perhaps secured against your home) and having lower monthly repayments could tempt you to take on additional short-term borrowing, building your overall deficits into a fiscal time-bomb.

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