Free Debt Consolidation - Is There Such Thing?

Free debt consolidation? You are right to be skeptical. You have always been taught that nothing in life is free. This is as true when it comes to debt consolidation as it is of everything else in life.

You will find many companies online offering “free debt consolidation”. What they actually mean is “free debt consolidation advice”, “…analysis”, or “….counseling”. In other words, they are offering an initial free service in order to secure you as a customer for their debt consolidation program, which is not free.

Debt consolidation can work in various ways. Some companies offer you an actual loan, which is used to pay off your creditors. Your monthly payments go to them to repay their loan to you. This can appear tempting because it seems easier to keep up a single monthly payment than to juggle several at different rates. However, when you work it out, the amount you are paying is higher than the total you were paying originally – this is how the company make their money. So even if they offered you a “free debt consolidation service” initially, there is no way their service is free.

The second type of debt consolidation is where, rather than offering a loan, the company makes arrangements directly with your creditors as to the agreed amount they will accept each month, and combine these into a single payment which you make to them, so they can make the payments to the creditors. In fact you are not usually aware of how much they are paying your creditors and probably don’t realize that they are keeping back a considerable proportion of your monthly payments for themselves. Again, this is how they make their money and is not illegal – it is your responsibility to ensure you know exactly how they operate. This again is certainly not free debt consolidation.

Another way in which companies can offer you “free debt consolidation” is by providing you with a loan to re-finance your home. This way you could obtain a cash amount to pay off all your debts and, again, make only a single monthly repayment to the finance company.

The one big thing you have to remember is that going further into debt does NOT get you out of debt. When you re-finance your home you will almost certainly find the conditions on the loan tougher than those on your original mortgage. By doing this you could also be contravening the conditions on your original mortgage, which could mean incurring penalty payments from the mortgage company. It could even mean that you become immediately liable for the full amount of the original mortgage. As you can see, this is very far from being free debt consolidation.

So, if debt consolidation is the solution you are considering, be very sure that you look at the whole picture and find out all the information first. And remember that, strictly speaking, there is no such thing as “free debt consolidation”, but there is such thing as credit card debt consolidation.