Thinking of consolidating your student loans? Believe it or not loan consolidation can be good for some but not for all. Certain factors must be in place before you should even consider this consolidation. Below, we’ve detailed some exact instances when student loan consolidation is a bad idea.

If you can pay your loans with ease: You’ve graduated college, found a great job and have begun building your family. By now, I’m sure you’ve started repaying your student loans. In the instance where you have everything under control financially, you should avoid consolidating your student loans. By consolidating, you basically stretch your payments out from 10 years to between 12 – 30 years. That means you could essentially be paying on student loans well into your 50’s. Does that make sense? If you have the income to handle the loan balance you have now, don’t compound the problem by adding on more years.

Student Loans

If you’re required to pay an early payoff fee: Let’s say you’re in a situation where you are about to default on your student loans and you need to refinance or consolidate your debt, be sure to stay away from loans that require you to pay early payoff fees. What this means is if you decide to pay the consolidation off early, the finance company charges you a huge fee for cutting their interest. Understand this, if you do pay your loan off early and you have early payment penalties, you could potentially be on the hook for thousands. You should avoid these types of loans at all cost.

If your loans have low interest rates: Why consolidate if you have loans with low rates already? Be sure you know what rate you are currently paying and avoid extending years on your loan.

If a variable rate loan is involved: You’ve heard of the “balloon” loan right? If not, here’s how it works. You obtain a loan at an obscenely low rate but the rate has the chance of “ballooning” or increasing after a certain time period. This type of loan was the downfall for many people during the financial crisis of 2008. People had loans at low rates but then the rates skyrocketed on them and they couldn’t afford the home loans any longer which resulted in default then foreclosure. Now, you won’t lose your home over school loans but you should want to preserve your credit rating. Again, if you must refinance, please avoid loans that have adjustable rates. The times are just too uncertain and you’ll have no idea where rates will be in 5-10 years.

Please understand all options you may have if you come into a bad financial situation. You have family and friend that may be able to assist you through the hard times. Sometimes you’ll need to suck up your pride and just ask. Debt consolidation should be the absolute last option you can think of. Don’t go out and make a grave mistake that could haunt you for years on in.