Is debt consolidation a good way to pay off your student loans?

It's all part of the American dream to go to college, get a job, start a family, and live happily ever after. What they don't tell you is that graduates are defaulting on federal student loans at the highest rate in nearly two decades. In fact, it's estimated that 1 out of every 10 graduates is in default. Couple that with the fact that the economy is in a lackluster situation, and everyone is buttoning up due to fear of the Obamacare Act; it's a daunting prospect to graduate college these days. However, even if you are in a mound of debt, it doesn't have to overwhelm you. There are some options available to you, and if you plan ahead, it might not be as bad as it seems.

Plan Ahead

First things first, if you're nearing graduation and you know you'll have payments coming up, now is the time to examine your student loans, and what is expected of you. If you don't have a job lined up and you know you won't be able to pay the student loans, then consider your options. You can apply for forbearance or a deferment in most cases, which will give you a little reprieve. However, these do not come without their own consequences, so be sure you understand your options completely before deciding. It is best to speak to a student loan representative to help you determine which is best for your situation.

Student Loan Consolidation

Another option available to you is student loan consolidation. There are some facts to keep in mind about consolidation loans. First, as a general rule, private student loans cannot be consolidated with federal student loans. This is because the low interest rates of federal loans are not available for private loans, and so you would not be able to roll your private loans into your federal loans. Theoretically, you could roll your federal loans over into a private loan, but then you'd be paying a higher interest rate. The best case scenario is to roll your federal loans into one payment, and roll your private student loans into one payment. Many people don't realize that they're paying two-three different loans under each category, depending on what they borrowed. So, by consolidating them into one payment, they can oftentimes decrease the total amount they'll pay over the life of the loan, and they'll also reduce four to six payments down to two. In the long run, this is a great option for help you pay down your student loan debt faster.

Reducing Debt the Old Fashioned Way

In addition to reducing your student loan debt through consolidation, you can also tackle it head on and reduce it the old fashioned way. Forbes has a great article about a college graduate who paid off $90,000 of debt in three years, and they did it the old fashioned way. They sat down and wrote out all of their debts followed by all of their income. Next they started slashing costs where they could: they gave up an expensive apartment and got a roommate, they cut the cable bill, they stopped eating out, and they gave up the gym membership. In addition to cutting costs, they picked up small jobs on the side to help pay the bills. Sometimes one income isn't enough to cover everything and make an impact on debt or savings, so picking up small jobs is a great way to help supplement your income. Once those boundaries had been established, they paid the minimum on their student loans and applied all of the extra money to the credit card debt and got rid of that first. Once that was taken care off, they chose the private loan with the highest interest rate and applied all of their extra money to that. Then they worked their way down until all of the debt had been paid off. If you want to know how to pay off a student loan faster, check out some of the personal finance stories around the web and choose actions that work best for you.

At the end of the day, student loans are a bear to deal with. Most people have way more loans than they should because those loans are far too easy to get, and the education available on them is somewhat lacking. However, the good news is that they can be reduced with a little patience and some hard work. Once you've paid your loans off, be sure to check your credit report to make sure they show as paid. Sometimes the information is not reflected right away and this can cause your score to fluctuate or to look lower than it is when applying for new credit. In fact, always do a credit check when you pay off any debts to make sure everything is taken care of properly.

Amy Johnson is an active finance blogger who is fond of sharing interesting finance management tips to encourage people to manage their personal finances. More specifically, she advocates that people should check credit reports and scores regularly.