Student Loan Consolidation vs Refinancing
If you’re thinking about consolidating student loans with bad credit, start by understanding your options. You’ll need to choose between federal student loan consolidation and private student loan refinancing. While both combine your loans into one payment, they work differently and have unique credit requirements you’ll want to consider.
If you are looking to combine all your federal student loans into a single loan, you should have no issues consolidating with a Direct Consolidation Loan. This program is offered by the federal government, and is only available for federal student loans. It does not require a credit check.
If you are looking to combine existing private student loans into one new loan, this is referred to as student loan refinancing and does require a credit check. If you have bad credit, you may still be eligible to refinance but you will need to apply with a creditworthy cosigner.
Refinance Student Loans with a Cosigner
If you do not qualify for a student loan refinance on your own, you may consider applying with a creditworthy cosigner. This is a person who agrees to share equal responsibility for the loan should you fail to pay. Many individuals ask a parent, spouse, or family friend to cosign. Here are the qualities you want to look for in a good cosigner.
- Excellent credit score
- Solid employment history
- Low debt-to-income ratio
- No recent bankruptcies
Student Loan Cosigner Release
If you need a cosigner to qualify to refinance your student loans but eventually want to own the responsibility for the loan yourself, look for a lender that offers cosigner release. This will allow you (the borrower) to request the cosigner be removed from the loan after a series of full, on-time payments, typically 12 to 48 months.
Steps to Take to Improve Your Credit
Bad credit isn’t impossible to overcome. If you would like to refinance your student loans, but do not qualify, try taking these steps to improve your credit.
Review Your Credit Report
Check your free annual credit report to determine what negative credit items could be affecting your overall score. To repair your credit, you’ll have to face these issues head-on. The first step is identifying and understanding the negative items on your credit report.
If you find anything in your report which is inaccurate, don’t let it go! Credit bureaus have existing processes in place to allow consumers to dispute information on their credit report. Make sure you file a dispute requesting the removal of incorrect information.
Catch Up on Missed Payments
Do you sometimes forget to pay your bills, or do you frequently pay your bills late? Missed or late payments can have a negative impact on your credit report. If you are just forgetting to pay certain bills, many services and creditors will let you set up automatic payments, or you can contact your bank and enroll in bill pay.
It’s important to find a way to catch-up. Call your creditor to set up a payment plan if it is too much for you to pay all at once. You can also contact a credit counseling agency to help you negotiate debts and payments on your behalf with creditors.
Find Ways to Increase Your Income
If you’ve been struggling to stretch your paycheck to cover your bills and other living expenses, you may want to attempt to increase your income. There are a few different approaches you can take.
If you are already employed full-time, you may want to check in with your employer to see if there are any opportunities for a raise, overtime, etc. If that is not an option, you can look for part-time job opportunities, including less traditional options like rideshare and food/package delivery which may offer more flexibility with your existing schedule. There are also remote jobs that you can do from home as an additional source of income.
If you are unemployed or underemployed, start the job search. Look for opportunities which help increase your income to cover your bills. Create profiles on the various job seeking websites, build up your LinkedIn profile, go to professional meetups and network to help find that next great opportunity to establish or increase your income. There are also employment agencies that could help or you could even seek out temporary positions to help bridge the gap until a more permanent opportunity comes along.
Seek Credit Repair Help
It can be difficult to come up with a credit repair strategy on your own, but there are credit repair companies that can help you through the process. They offer customized services, and will generally charge a fee, but it may be worth it to help get you back on track.
Stick to Your Plan and Remain Patient
When it comes to fixing bad credit, it takes time. Try to be patient and know that each positive step you take will help you achieve your credit goal. Many banks offer monthly credit monitoring as a benefit or for a nominal fee. Make sure to take advantage of these programs for monthly monitoring to stay motivated and keep track of your progress. Know that it may take three to six months for you to start seeing improvements.
It could take some time for you to fix your bad credit, but the work shouldn’t stop just when your credit is fixed. Keep up the good habits you formed while repairing your credit, like automatic payments and monitoring your credit report, to help keep your credit healthy.