Free credit consolidation
The Federal Government is on a new plan to reduce the interest rates on the loans taken up by the common man by disbursing FHA secured debts in the market for a percentage as low as 4%. The average mortgage backed loan interest rate till recently stood is between 5.5% - 6%. The FHA program is aimed to reduce these rates by at least 100 basis points. Naturally, if the mortgaged interest rates are at 6%, normal credit rates would be almost 7%-7.5% which now after this FHA announcement will lose steam and may shrink to 5.5%. Now, this is the time when one should consider their free credit consolidation exercise because there would be a straight 2% reduction in the interest rates at least an advantage which would be profitable even after taking into account the exit fees and other add-on charges. What more? There are many organizations to give free credit consolidation counseling services to their clients and help them in reducing their loan burden.
Actually, free credit consolidation means taking up one fresh loan with a lesser rate of interest in order to repay the existing loans which carry higher rate of interest.
In this way, the loan seeker stands to gain the following benefits:
Reduction in interest rates
One single monthly payment instead of many payments in a month at different due dates
More clarity on financial terms
Late fees payment can be avoided as planning for the single payment can be done more easily than for different payments.
Qualifications in the credit reports, bankruptcy filing or harassing calls from the debtors can be avoided.
With planned financial restructuring, one can even become debt free over a period of time.
Now that the organizations who have been disbursing credit all these years are finding it difficult to restore their loans from their customers, they are resorting to ways and means like offering free credit consolidation counseling services so that their customers become more financially responsible which would in turn be advantageous to these organizations.
The counseling for free credit consolidation actually works successfully only if the counselor plans all your financial needs perfectly and accordingly advises to you the steps to be taken for reducing the interest rates. Naturally, with reduction in the interest rates, your installment burden per month also reduces and as such, you would be in a better position to repay the loan on a regular basis. There are circumstances wherein the loan seekers could reduce their payments by almost 50% of their original loans and finally could repay them easily. Also, in case of older loans, consolidation implies newer loan and as such the older versions become extinct without facing any problems.
However, there are instances where the loan officers just try to sell their loans to the innocent loan seekers in the name of free credit consolidation services. What they do is to quote a low interest rate without specifying whether it is on diminishing balance method or the straight line method. A lower interest rate on the straight line method wherein the whole of the principal is taken into consideration without reducing the repaid amount still proves to be costlier than the higher interest rate on the diminishing balance method wherein only the principal actually outstanding is taken into consideration.
Secondly, one needs to be careful about whether these loans are ARM based or FRM based. While the former implies Adjusted Rate Monthly installments, the latter means fixed installments. Adjusted rated loans get their interest rates adjusted on some quarterly or half-yearly basis according to the interest rates ruling in the market. Fixed ones on the other part lock the interest rates at the time of the inception of the loan and irrespective of the rate fluctuations they stay at the same rate. People who have taken FRM loans at higher interest rate earlier may now be the most beneficial free credit consolidation loan seekers if they go for one single FRM loan at the current interest rate.
One more important type of loan disbursement in the free credit consolidation way is the line of credit wherein interest is calculated only on the amount withdrawn from the account even though the actual loan stands at a higher value. Sometimes, the existing loans may have different dates of maturity and the exit fees for such loans may be very high. In that case, taking up a line of credit serves the purpose of the loan seeker withdrawing a definite amount of the loan at a determined period of time and the interest rate is payable only to the amount withdrawn leaving the original loan sanctioned which still lies in his saving account and could be utilized at a future period of time. In this way, reduced interest for reduced principal serves the purpose of reducing the debt burden in a better way.
Other than this, the loan seeker has to be very careful about the be hidden charges like the origination fees, application fees, maintenance charges etc. which may make the whole free credit consolidation exercise meaningless. A thumb rule is to go with lenders who are fair in their dealings whether financial institutions or simple money lenders. These are the ones who go for regular audits and publicly announce their financial statements for public knowledge. People who are not fair in presenting their calculations clearly, always prove to be tricksters and they will just eat away all your money in the name of free credit consolidation services.
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