Debt Consolidation Loan Facts

Individuals who find they have accumulated more debt than they can reasonably repay have a number of options available to them. Many people in this situation assume their only option is to file for bankruptcy, yet nothing is further from the truth. A debt consolidation loan is often of great benefit in this situation. However, a person needs to get the facts before obtaining this type of loan to ensure it is the best solution to their problem.

Student Loan Consolidation?

Borrowers need to know that private and Federal student loans cannot be consolidated together. A student who has graduated, left school, or is no longer enrolled full-time may choose to consolidate their Federal student loans, but this must be done separately from private student loans. However, private and federal student loans may be refinanced together. The one drawback to this is the student loses his or her eligibility for student loan forgiveness when they choose to refinance.

No New Debt

Any person wishing to obtain a debt consolidation loan will need to stop accumulating new debt. Most lenders now make this a requirement of the loan and demand the borrower close the accounts once they have been paid in full. This helps to ensure the borrower can make the payments on the consolidation loan as agreed instead of getting into further financial debt without resolving the existing debt.

Interest Rates Vary

Companies often advertise a low interest rate to draw individuals in. The interest charged on a debt consolidation loan, however, will vary based on many factors. Some advertised rates are promotional and will only be available for a short period of time. Keep this in mind and compare loans carefully to obtain the best rate possible.


Some credit counseling agencies operate on a non-profit basis and don’t charge fees. This is not the case for all though, thus borrowers also need to compare agencies. It may make more sense to pay a fee and work with a for-profit organization if they are superior in other ways.

The last thing a person wants to do when trying to get out of debt is to accumulate more. For this reason, compare debt relief companies carefully to decide which is best for the unique situation. Those who do so find they obtain the relief they need without a lot of hassle.