Many people's first debt is the student loan they have to pay off after they graduate from college. This means that terms like fixed rate, variable rate, and consolidation are new and strange. It can be scary to learn about financial terms, but the more you know about your student loan package, the more likely you are to be able to come up with a smart plan to get out of debt. If you know how your loans work, you can save money and learn money skills that will help you for the rest of your life. There are two main types of loans for college. One has an interest rate that doesn't change, and the other does. The interest rate on a fixed-rate loan will stay the same for the whole length of the loan. With a fixed-rate loan, the interest rate will stay the same no matter what happens in the financial sector in the coming years, whether it grows or crashes. A variable rate loan is based on how the market is doing at the time. If your loan has a variable interest rate, the amount of interest you have to pay can go up or down depending on how the market is doing.
The biggest question about student loans is whether or not you should consolidate them. In some situations, consolidating your loans can lower your monthly payments and help you avoid paying high interest rates. This is a great way to save money both now and in the future. But not everyone can benefit from consolidation. Learn about your loans before you decide whether or not to consolidate.
With consolidation, you can combine different kinds of loans into a single loan with a fixed rate. This means that each month, you will only have to make one payment, no matter how many lenders helped you pay for school at first. When you consolidate a loan, you can often extend the time it takes to pay it back, which means you pay less each month. So, if you find that your monthly payments are putting a lot of stress on your finances, consolidating can help. But when payments are lower, it takes longer to pay off the loan. So, if you want to get out of debt quickly, you might not want to consolidate your loans. If one or more of your loans have a variable interest rate, consolidation can give you peace of mind by letting you plan on a fixed interest rate for the whole time you are paying back the loan. But the interest rate on a consolidated package is often a little bit higher than the average market rate. If most of your loans already have fixed rates, it's usually not a good idea to consolidate.
