Discover How A Secured Debt Consolidation Loan Can Ruin Your Financial Future

Author: Steve Bis

2008-01-02 Word Count: 634 Category: Debt Consolidation

First what is a standard debt consolidation loan? This is when you use an asset of value that can be used as collateral to aquire a loan, in the majority of situations debtors use the equity in their home. Initially this should seem like a simple and easy choice to manage a debt situation that has spiraled completely out of control. You simply aquire the debt consolidation loan too pay off all your debts and then only have one monthly payment, instead of making numerous monthly minimum payments to different creditors throughout the the course of the month.
Now let's take this situation and put it under the magnifying glass. First, this is known as 'debt transformation' a method of transferring debt from one place to another. In reality what you did was transition your low risk unsecured debts into higher risk secured debt. This is where the real problem occurs, because if you encounter any monetary problems again that could make you start to miss payments you run the risk of having the bank take your house away. Most people do not seriously consider this scenario when taking this approach. Debtors think they solved their problem by not having any more credit card debt, but in reality are setting themselves up for a much more severe problem.
Debtors pay off their cards through the debt consolidation loan secured courtesy of their home and now have no balance on these cards. However people will not submit to giving the cards up, which inevitably will lead to them being charged on. Using credit cards (plastic) for many people is a subconscious addiction, credit card junkies, and they live in denial. Stats have shown that after five years 80% of debtors who use this avenue of debt relief end up with the same credit card debt problems and now a higher mortgage payment.
What happens next is you sneak a look over your shoulder only to discover a huge mountain of credit card debt behind you only to wonder how in the world you got there again. 95% of the time it started from that sole credit card you kept out just in case. Soon the credit card companies see you as a higher credit risk and raise your APR up to 29% or more. Once the interest rate has been increased your monthy minimum payments double and sometimes even triple.
Now you find yourself trapped back in the thick of the unforgiving credit card treadmill, however you have a second mortgage that must take precedence over the credit card debt or potentially risk your home being foreclosed. At this point you don't have any equity to do it again and your debt to credit ratio is far too high to get any type of loan, going bankrupt becomes the simplest road out of this mess. However filing for bankruptcy will leave a very serious scare on your credit report.
I have spoke with thousands of consumers over the last 17 years who did just what I described in the previous paragraphs. And every one of them said the same thing. They really did think they were going to be able to handle it and did not have the foresight to see themselves ever getting back into debt with credit cards again and wished they had someone who would of advised against the move they made back when they did it.
For most consumers who were trapped in this position the smartest decision at that time would have been to enter into debt settlement. Even though through settlement the credit history will take a hit it is by far the quickest way to become debt free while at the same time saving a tremendous amount of money on what the current balance is.

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