How Does "Free" Credit Consolidation Work?

Free credit consolidation primarily means that an individual will take their debt and roll it into an entirely new account.  The consumer will get a new loan, with a lower rate of interest in order to repay the existing loans, at higher rates.  By doing this, the consumer will typically see an immediate payment reduction due to lower rates.  Another benefit it that a consumer will only have to make one single monthly payment, rather than multiple loan payments each month.  The new consolidation financial terms will be easier to understand and a consumer can  also avoid late fee charges because it is much easier to organize one payment a month, rather than several monthly payments per month. Possibly the most important benefit is the assistance to credit: consolidations can help improve credit ratings and avoid collection and debtor phone calls.

The Federal Government, or FHA,  is trying to sketch out a new plan to reduce the over all interest rate on loans taken out by consumers by using FHA secured debts in the market with a low rate of 4%. In the market, the average mortgage backed loan interest was almost 5.5% to 6%. The FHA program is planning and strategizing to reduce the rates by almost 100 basis points. If the mortgaged interest rates are 6%, then the credit rates will be at least 7-7.5%.

At present, there are a many different organizations that offer free consumer credit counseling.  The counselors will help negotiate bad debts and give their clients a clear route to follow to improve their credit standing.  The counselor will need to have a complete understanding of the client’s financial status.  Almost all large organizations have credit floating in the market and recovery and since recovery has become much tougher, the companies are offer free credit consolidation to alleviate the consumer from financial hardship or burden.  Consolidation not only helps customer because ease of repayment, but also helps the companies that offered the credit recover their money so that they can lend more money out again.



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