Personal Planner: Consolidating student loans

Question: I am from the UAE and currently in the third year of study at a US university. Part of my educational expenses have been self-financed. I have taken out loans to pay for living expenses. I also have a couple of credit cards. How to go about about consolidating student loans?

Answer: The cost of attending university can be very high and like you, many people pay for the experience in a variety of ways, using savings, loans, credit cards and the kindness of family and friends.

However, as you are now nearing the end of your degree programme it is important to think about how you will re-pay the money you have borrowed and consolidation is usually the most cost-effective way to achieve this.

Look at the loans you already have and check out the different interest rates and payment plans they offer. If one of them is more favourable than the others then approach the lender and see if they are willing to take on your other debts.

Alternatively, you can shop around to see if there are any other lenders on the market that are willing to take on the larger debt. Of course the aim is to find a lender willing to transfer all your debts, free of charge, with a lower interest rate and a more manageable payback period than you have on your current loans.

As well as securing a more cost-effective payment plan, having your loans consolidated with one lender means that if you default you will only have to deal with one organisation — making it simpler for you to negotiate a new payment deal.

It may also be wise as part of your loan consolidation to take out an extra sum to pay off your credit cards.

Interest rates on credit cards can be very high unless you have signed on with a zero per cent interest deal. But even then if you default on a payment the interest rate on the total owed will normally revert to the non-promotional rate, which can be very high, leaving you in even more financial trouble.

Standalone

Worth mentioning here is that if one of your loans is a student loan then it may be more financially beneficial to leave it as a standalone loan. Student loans normally come with very low interest rates and specific payment stipulations which would make it unwise and even difficult to consolidate.

Often lenders will transfer student loans directly to your university to pay for tuition and accommodation fees to prevent individuals from taking advantage of the low interest rates and investing the money in other schemes.

Also, make sure that under the terms of the consolidated loan agreement you have built in flexibility in paying the sum off as there may be penalties for late repayment.

Think about what your financial situation will be when you graduate — speaking to an independent financial adviser about the best way to manage your income once you start earning would be prudent at this point.

You may be lucky enough to enter a profession that pays well from the start and so you can afford to settle the debt and start investing in a short amount of time. However, some graduates start off in low-paying jobs and will need more time, and possibly a repayment freeze, until their salary is high enough to pay back the loan.

- The writer is Business Services Director, Nexus Insurance Brokers LLC. Opinion expressed is the writer's own and do not reflect that of Gulf News. if you have any questions, please email to advice@gulfnews.com