Comments | poor_skills: Loan Consolidation v. Debt Snowball?

belleweather in poor_skills

Loan Consolidation v. Debt Snowball?

Apr 15, 2007 21:33

I have a bunch of student loans, ranging from small to pretty big. They're mostly all coming due in 6 months and I'm trying to figure out the best way to manage the payments. We're planning on paying the minimums on all loans, plus an extra chunk of change every month. I can't figure out whether it would be better to ( Read more... )

loans, debt, budget, education

Comments 35

journalismgirl April 16 2007, 02:55:51 UTC

Will you lock your rates with the consolidation? If you can, I'd do that option.

For flexible rates, snowballing seems better -- and if you were posing the question with credit card debt I'd certainly recommend that -- but I think you could save money on the interest with consolidation and locking a rate.

belleweather April 16 2007, 03:27:48 UTC

Yeah, I'd definatley want to lock in a low rate... that might be reason enough to consolidate right there, actually. But I'm a big believer in a coming market correction and lending contraction, so perhaps I've just drunk the kool-aid. :)

cmarie14 April 16 2007, 02:59:00 UTC

I actually was thinking it was great that you are trying to be debt free - it also means that those are obligations and anchors that you are free of - nothing to hold you down from doing what you want. Besides, interest is interest - why hold on to something that will just cost you money in the end ( ... )

rexlezard April 16 2007, 02:59:54 UTC

My completely unsophisticated advice:

Never consolidate, unless you're rolling existing debt into a mortgage or something, or unless you're getting a break on the interest and it's not going to count against you on your credit report. I'm not in the US, but here there are "consolidation loans" that negatively affect your credit score. Often, they don't actually save you any money.

Snowballing is very smart, some times tricky to figure out. http://www.whatsthecost.com/snowball.aspx might help.

Also, if you have credit card debt, unless it's at a really low interest rate already, they will often drop the interest rate with one phone call.

belleweather April 16 2007, 03:24:30 UTC

We have no credit card debt. I'm (in)famous for believing strongly enough that credit cards are the devil that I refuse to get or use one ever. :)

Also consolidation loans for general debt and consolidation loans for student loans are totally different things.

Thanks for the calculator! That will make my job way easier.

yackyackyack April 16 2007, 20:27:01 UTC

It really depends, but my consolidation actually put me in a MUCH better place. There isn't just one advantage to it...you may get a lower interest rate (I went from 5.35 to 2.8 percent) and it can also lower your payments (mine went from being a crushing 600 per month to being 74 per month now and then graduating later on). Also, my interest rate drops another percent if I make 36 on time payments. Plus, I was able to just buy both a house and car no problem, and my credit score is 746. So there are many times when consolidating can definitely be the best option, especially if you can't afford the payments on all of the individual loans right away but feel your income will increase in the future.

winterknight April 16 2007, 03:05:56 UTC

We have a line of credit at prime+1% and were doing the snowballing thing. For us, this is now our only debt aside from our mortgage and most of the money actually went into our house and our car years ago when my parents loaned us the money -- the line of credit was to pay them back. We now are able to put a great deal in every month. I find it far easier to focus on and I am now far more responsible about our finances since the line of credit is such a concrete thing and our other things like credit cards stay at zero. If you can work this out, I think you could find yourself in a good position. However, this is not the same as a consolidation loan; we just used it that way.

belleweather April 16 2007, 03:25:57 UTC

That's a good idea... I don't know that we could qualify for a general line of credit with as good terms as a consolidation, though. Even though our credit is pretty decent, our student loan debt is more than most people's mortgages. :) I will check and see, however.

yackyackyack April 16 2007, 20:28:49 UTC

Have to comment, if you have government loans DO NOT use means to pay them off such as a credit line that would change their status as government loans. Government loans are the only ones that have a guarantee that if you become permanently disabled or die they will be forgiven. If you move your loans to a line of credit you lose that right.

stacycat69 April 16 2007, 04:40:22 UTC

For me, I would rather consolidate my loans so I only have one payment to worry about. Unless you have smaller loans that you can pay off in a reasonable timeframe, and want them paid off, I would consolidate.

But, thats not a financial reasoning, its only my practical matter, I know how bad I can be with multiple bills.

belleweather April 16 2007, 04:45:29 UTC

It IS a pain in the ass. But we have free bill pay through our bank, so we'd hire it out to them. We'd just have to keep close reigns and remember to switch the overpayment over when the first loan was paid off.

If it weren't such a huge amount of money, I'd just do the easy thing, but between the spouse and I were talking about more debt than most people's first mortgages, so if we can save pennies, we'd best do it.