Disadvantages of Loan Consolidation

While there are many advantages for a student or school loan, remember that there are always a few pitfalls. Here are a few listed below:

• The student loan will take longer to pay off.

• Some loans when consolidated have a higher interest rate. Avoid this.

• Some consolidation companies will push other products, like insurance for the loan etc.

• Be careful if the loan is secured against your home, as it will be at risk if the payments are not kept up.

School Loan Consolidation versus Bankruptcy

School loan consolidation is very effective in avoiding the more serious bankruptcy. Remember that school loan consolidation is basically a refinancing package, where your old loans are replaced with one new loan at much better interest rates. Consolidation also brings help from a consultant who will deal with your creditors on your behalf, so there will be no rude letters or phone calls like you would if you were going through bankruptcy.

Bankruptcy on the other hand is where your debts are cancelled and your credit score rating drops through the floor.

Avoid Credit Cards At All Cost

Many students who manage to consolidate their student loans often start using their credit cards again. They do this before paying off their school student consolidation loan. Remember that doing this will make your position worse off in the long run. Not only will you have your consolidated loan to pay off, but also your credit card.

It is important to pay off your school loan first, before getting into further debt. It maybe worth while to cut up your credit card until the loan is paid back. If you do have to find further credit, make sure you can afford the monthly repayments.