Is Consolidation a Smart Move?

Dear Dave,

I've got my beginner's emergency fund in place, and I'm close to wiping out my consumer loan debt. I still have about $32,000 in debt from six different government-insured student loans, but they're in deferment at the moment. I was wondering if I should try to consolidate them.


Dear Jason,

Well, you get to consolidate these one time. After that, you're stuck. So, you'll want to make sure that the net interest rate you get through consolidation is lower than your current rate. Also, make sure the interest rate is fixed. You don't want to jump through hoops to make this deal happen, and end up with an interest rate that's equal to or higher than the one you had before!

Student loans are the only things I'll tell people to consolidate. They're a little different animal than ongoing loans and other kinds of credit. Chances are you're not addicted to going to class, so you probably won't go out and ring up more student loans after you've finished your education and paid off these things.

Just maintain that gazelle intensity, keep working hard to get out of debt, and pay these things off early. Remember, too, that in lots of cases consolidating student loans will move them out of deferral. There's a good chance you'll have to start making payments right away!

- Dave

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