(PRWEB) January 28, 2005
With interest rates at 50 year record lows and home values at record highs, many homeowners are tapping their equity and refinancing with debt consolidation loans. This may or may not be the best move for many.
Debt Consolidation Loans usually require you to secure the loan against some form of asset, (i.e., your home, as in a second mortgage or a home equity line of credit). At this point you have gone from unsecured debt to a secured loan and put your personal assets (your home) at risk. Many consolidation loans are spread out over a 30-year period leaving you open to the loss of your assets over the entire period.
With credit cards and other types of unsecured loans there is less that a creditor can do if you fall behind on your payments. With consolidation loans, if you cannot make the payments or are even late on making your payments, you can very easily lose your home. Why would you want to go from unsecured debt to a secured debt over a longer period of time?
The main reason that 80% of the people who get consolidation loans end up in worse financial trouble is they do not cut up their cards or cancel them once they have been paid off with the consolidation loan. Within a very short time, most people soon find their cards maxed out to their limits. As mentioned, this happens an incredible 80% of the time to people who say it will never happen to them. (A good article on the ProÂs and ConÂs of Debt Consolidation: http://www.creditchampion.com/?Document=Debt+Management)
You then end up with not only the consolidation loan to pay back, but struggling to pay the minimum payments on the newly charged credit cards as wellÂall with the same amount of income as you had before. This is the shortcut to financial ruinÂand it happens to 80% of the people who take out a consolidation loan. Remember, being in any kind of debt leaves you less spendable income than you probably need to buy life's necessities. Although a consolidation loan may give you a lower payment and a little more breathing room, is that really going to leave you with enough spendable income to get you through the next 10 to 30 years?
Debt Consolidation is not always a way out, but in many cases, a way into deeper debt and worse financial problems. However, in some cases it is the best option, especially when done along with a debt negotiation and settlement program.
Contact: National Legal Debt Centers, Inc. http://www.nldc.us
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