First what is a typical debt consolidation loan? This is when you use the equity in your home, which is a loan secured by your house to pay off your other debts usually unsecured debts.
At first this may seem like a simple and easy option to manage a serious and possibly out of control debt situation.
You simply get the loan too pay off all your debts and then only have one payment each month, instead of making multiple payments to different creditors throughout the month.
But let's take a closer look at this scenario.
First, this is known as "debt transformation" a method of moving debt from one place to another.
All you did was transform your lower risk unsecured debts into higher risk secured debt.
This is where the real problem occurs, because if you run into financial difficulties again they can foreclose on your house.
Most people don't seriously consider this when taking this approach.
They pay off their cards with the debt consolidation loan secured by their home and now have no balance on these cards, but still leave one open with the highest credit limit just in case.
Using credit cards (plastic) for many people is a subconscious addiction, credit card junkies, and they live in denial.
Statistics have shown that after five years 80% of people who use this method end up with the same credit card debt problems and now have a higher mortgage payment.
What happens next is you look over your shoulder only to discover a huge mountain of credit card debt behind you and wonder how you got there again.
95% of the time it started from just that single credit card you kept out just for emergencies.
Soon the credit card companies view you as a high credit risk and increase your interest rate up to 28% or higher.
Once the interest is increased your minimums double and possibly even triple your monthly minimum payment.
At this point you are stuck back in the thick of the unforgiving credit treadmill, however you have a second mortgage that must take priority over the credit card debt or you will lose your home.
At this point you don't have any equity to do it again and your debt to credit ratio is too high to get any type of loan, going bankrupt becomes the easiest way out of this mess.
I have spoke with thousands people over of the last 19 years who have done just what I just described.
And every one of them said the same thing.
They thought they were going to be able to handle it and did not foresee themselves ever getting back into credit card debt like that again.
Bottom line is "No Pain, No Gain.
" What it boils down to is debt consolidation loans can sometimes be all too easy.
And lets face facts getting out of debt is not an easy thing for most people.
Any route you choose to get out of debt is going to require a sacrifice of some kind, and that sacrifice will make your stronger and teach you not to make the same mistake again.
It's just like working out at the gym you need the pain in your muscles to know they are growing and it takes time and effort to get the great results you desire.
However those people who take steroids get a quick fix end up losing in the end.
So if you are going to use your home for a quick fix for a credit card debt problem you have to give up all cards, and not even keep one! The odds are stacked against you if you still keep one card you will end up back on the credit treadmill again.
At first this may seem like a simple and easy option to manage a serious and possibly out of control debt situation.
You simply get the loan too pay off all your debts and then only have one payment each month, instead of making multiple payments to different creditors throughout the month.
But let's take a closer look at this scenario.
First, this is known as "debt transformation" a method of moving debt from one place to another.
All you did was transform your lower risk unsecured debts into higher risk secured debt.
This is where the real problem occurs, because if you run into financial difficulties again they can foreclose on your house.
Most people don't seriously consider this when taking this approach.
They pay off their cards with the debt consolidation loan secured by their home and now have no balance on these cards, but still leave one open with the highest credit limit just in case.
Using credit cards (plastic) for many people is a subconscious addiction, credit card junkies, and they live in denial.
Statistics have shown that after five years 80% of people who use this method end up with the same credit card debt problems and now have a higher mortgage payment.
What happens next is you look over your shoulder only to discover a huge mountain of credit card debt behind you and wonder how you got there again.
95% of the time it started from just that single credit card you kept out just for emergencies.
Soon the credit card companies view you as a high credit risk and increase your interest rate up to 28% or higher.
Once the interest is increased your minimums double and possibly even triple your monthly minimum payment.
At this point you are stuck back in the thick of the unforgiving credit treadmill, however you have a second mortgage that must take priority over the credit card debt or you will lose your home.
At this point you don't have any equity to do it again and your debt to credit ratio is too high to get any type of loan, going bankrupt becomes the easiest way out of this mess.
I have spoke with thousands people over of the last 19 years who have done just what I just described.
And every one of them said the same thing.
They thought they were going to be able to handle it and did not foresee themselves ever getting back into credit card debt like that again.
Bottom line is "No Pain, No Gain.
" What it boils down to is debt consolidation loans can sometimes be all too easy.
And lets face facts getting out of debt is not an easy thing for most people.
Any route you choose to get out of debt is going to require a sacrifice of some kind, and that sacrifice will make your stronger and teach you not to make the same mistake again.
It's just like working out at the gym you need the pain in your muscles to know they are growing and it takes time and effort to get the great results you desire.
However those people who take steroids get a quick fix end up losing in the end.
So if you are going to use your home for a quick fix for a credit card debt problem you have to give up all cards, and not even keep one! The odds are stacked against you if you still keep one card you will end up back on the credit treadmill again.
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