Posted on January - 11 - 2010
What is Free Debt Consolidation Loan?
To understand the concept of free debt financing we will create a scenario of a typical stable homeowner who living comfortable on their existing income. You are husband with a five to six figure salary, capable of buying your wife whatever she needs, sound mortgage payments, two cars in the parking lot and kids in good schools. Suddenly your wife decides she wants to redo the kitchen. Of course with a $10,000 credit limit you will go to your closest DIY store, you choose a kitchen designer store that offers you a six month interest free package on a $20,000 kitchen set. Six months later, you miss one payment on your credit card and you are hit with a 13% interest rate on your credit card and a 19% on the kitchen set. You are now left with a dilemma of how you got into this position.
Free Debt Consolidation
Suddenly, the free debt has dried up and you are now scrambling to get out of the unfamiliar position of being in debt. Surely, with a chance of nine out of ten, your friends will suggest that you seek out a free debt consolidation loan that will allow you to pay off your credit card debt, kitchen expenses and any other existing debt. This loan will also increase your immediate spending power by putting more cash in your pockets in the short run. Homeowners can tap into the equity of their homes to raise significant amounts of money, improve their negotiating position and gain significantly cheaper interest rates on loans.
How does Free Debt Consolidation Loans Work
Under the debt consolidation module, financial institutions pay off all your existing debt to various institutions irrespective of the source. They then sit down with you to negotiate a new loan package that covers the value of all your previous debt. This value is then prorated over an extended period at an interest rate suitable to all parties. Although the total amounts repaid will be more than what existed prior to the loan, the extended period of the loan creates more cash in hand for borrowers. Therefore, individuals will see a 15-year mortgage amortized to a 30-year loan at a significantly reduced interest rate. This also results in a drastic improvement in your credit rating.
Important points about Free Debt Consolidation Loans
Do not be fooled by the connotation “free debt consolidation loan”, no loan is free. They may be relatively inexpensive compared to other forms of loans available.
It is better to seek debt consolidation loans before your credit rating is all shot up. After you have entered into bad credit and attained a credit rating below 620, you are then at the mercy of the broker.
Ensure that the property you have a value of at least 80% of the total sum you wish to borrow. If not it reduces your negotiating ability to get preferred interest rates.
If you have lived in your house for more than six years, it is not wise to take out a new mortgage on it as this will set you back another ten years in payments.
Remember that your house is not an ATM machine, so debt consolidation should be done only if it really required.
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