Consolidate or Refinance: Which One to Choose?

Consolidate or Refinance: Which One to Choose?

You may know that you want to do something about your student loan payments, but knowing exactly what to do is the issue. There are two basic options when it comes to private student loans (federal loans won’t be covered in this article since you have to consider a few additional terms when working to lower government loan payments).

The options that you’ll find include refinancing or consolidation. The two sound the same, but they are truly different. Knowing the difference between these two options will help you decide which option is right for you.

Refinancing Your Loan

Essentially, refinancing method that you will take out a new loan to pay off the existing loan(s). One you’ve refinanced the two loans will be combined into one loan with a lower monthly payment. Typically, refinancing allows you to choose better interest rates and repayment terms, but in most situations you do need to have very good credit (and a good track record when it comes to making monthly payments) in order to refinance.

You can refinance both federal and private loans, but refinancing a federal loan method that you will give up certain rights that you probably don’t want to relinquish.


When you consolidate a loan, you don’t take out a new loan. Instead, you combine various loans into a single loan. The assistance of consolidation is that it’s easier to make one single payment instead of making multiple payments for multiple loans. However, there are drawbacks to consolidation. While a payment might be lowered if you consolidate a loan, there’s a good chance that the interest rate will be much higher — this is something that you’ll want to be very careful about.

It doesn’t make any sense to consolidate a loan for sheer ease and pay higher interest rates. If you are tempted by consolidation, look at various other options before making this choice. Refinancing might be a better route to go if you can refinance your loans.

The Difficulty

The problem with lowering most monthly student loan payments is that you really need to have excellent credit in order to get a great rate. This can be problematic (and usually is), since most graduates with hefty student loans a) may not have a steady job however b) might have missed a payment or defaulted already.

If you are having trouble making your loan payments, it’s time to get financial help. Although bankruptcy is a last resort, a bankruptcy lawyer may be able to help you decide if it is the right option for you.

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