Incorporating Debt Consolidation into your College Savings Plan
Debt consolidation is usually thought of as a method to get out of the debt that you accumulate while you’re in college. Hardly anyone thinks of it as a method to help save for college. Debt consolidation is a useful financial tool, and it can do a lot more than just help people who are having problems with their debt.
For many American families, debt repayment eats up a significant portion of the monthly budget, even if a family can afford all of the payments. Debt consolidation allows a family to cut back on this area of their budget without worrying about their credit rating or paying a lot of high fees. Instead of paying on several different loans every month, a debt consolidation loan combines all of those loans into a single loan, eliminating mandatory minimum payments. The new loan has a lower interest rate, and in many cases it can also have a longer payment term. These three factors taken together mean that there is a good chance that your new debt payment will be half of what you used to pay.
For many families, that’s a savings of hundreds of dollars a month. Instead of using this money to pay interest and fees on your loans, use it to start a college fund for your kids.
If a couple decided to get a debt consolidation loan that saved them $200 a month, they could save $2,400 a year for their kid. Over a period of 18 years, that’s $43,200. Of course, your debts will be paid off well before then, giving you the ability to save even more. In fact, it’s not uncommon for families using this strategy to save over $100,00 towards their kids’ college education.
<p data-sp-element=”content”>The costs of higher education are rising at a rate faster than inflation, making it next to impossible for families to save enough for a four-year degree. Using a debt consolidation loan to reduce and eventually eliminate one of your highest monthly bills means that you can free up hundreds of dollars a month to put towards this expense. Saving up this money, of course, means that your kids will never have to struggle with student loans, greatly increasing the chances that they’ll be able to save for their own kids to go to college.