Is loan consolidation the best option?

Sources:

Brad Barrett and his guests have shared various insights on loan consolidation that can help determine if it is the best option for you.

  1. Student Loan Consolidation:

    • Travis Hornsby highlights that loan consolidation under the Biden administration's plan will use a weighted average repayment credit, which may benefit those with a mix of lower and higher-value loans. However, it may not be beneficial for recent graduates who haven't had long repayment periods, or for individuals with a very low payment based on older income certifications 1.
    • For older loans (especially those from before 2010), consolidating soon is recommended to avoid potential legal challenges that might disrupt benefits 2. Consolidating with the Department of Education rather than private lenders allows eligibility for loan forgiveness programs 3.

      Student Loan Consolidation

      Travis explains how the Biden administration's new plan for student loan consolidation will use weighted average repayment credit. He also highlights who may not benefit from this plan, such as recent graduates and those with a low income-based payment.

      ChooseFI

      437 | Are You Old Enough for Student Loan Forgiveness? | Travis Hornsby
      1
      2
      3
      4
      5
      6

  2. Debt Consolidation in General:

    • Debt consolidation can be tempting for those struggling with multiple high-interest debts. Brad Barrett's discussions suggest it can be effective for simplifying payments and potentially lowering interest rates. However, it may involve fees and a shift in the type of debt (e.g., from unsecured to secured, which has its risks) 4.
    • Jenna, a guest on the podcast, emphasizes that debt consolidation is not universally beneficial. People with secured debts or very low-interest loans are not good candidates. Additionally, those with extremely low credit scores might face higher interest rates, making consolidation less advantageous 5.

  3. Personal Loans vs. Home Equity Loans:

    • Personal loans usually have shorter terms (1-5 years) and can be discharged in bankruptcy, which provides some protection. Conversely, home equity loans offer low interest rates over longer terms but put your home at risk if payments cannot be made 6.

Consolidation can be a good option for those with multiple high-interest debts seeking simplicity and potentially lower payments. However, it is crucial to evaluate specific situations, compare costs, and consider the risks, particularly when converting unsecured debt to secured debt secured by your home. Always consider consulting a financial advisor to make an informed decision.

RELATED QUESTIONS