Discover How A Secured Debt Consolidation Loan Can Bankrupt You

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Author: Steve Bis

Article source: http://www.articledeshboard.com/. Used with author's permission.

For starters let us identify what a secured debt consolidation loan is. This is when you use the equity in your home, which is a loan secured by your home to pay off your other debts usually credit cards and other unsecured debts. At first this should seem like a very easy choice to manage a debt situation that has spiraled totally out of control. You basically obtain the debt consolidation loan too pay off all your debts and then be required to make one monthly payment, instead of making multiple monthly payments to all your various creditors throughout the month.
Now let's take this predicament and put it under the microscope. First, this should be called '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 high risk secured debt. This is where the precarious situation begins, because if you experience any financial problems again that could cause you to start missing payments you run the risk of having the bank take your house away. Most individuals don't seriously consider this scenario when taking this approach. Debtors think they have found an answer to their debt problem by not having any more credit card debt, but in reality are setting themselves up for a much more severe problem.
People pay off their cards through the debt consolidation loan secured by their home and now have no balance on these cards. But still leave one card open with the highest credit limit just in case. Using credit cards (plastic) for many debtors is an underlying subconscious addiction, credit card junkies, and they live in denial. Statistics have shown that after five years 80% of people who use this avenue of debt relief end up with the same credit card debt problems and now a higher mortgage payment.
At this point you look over your shoulder only to be shocked with a mind boggling mountain of credit card debt behind you only to speculate how in the world you got there again. The majority of instances it began from that sole credit card you kept around just for emergencies. Shortly thereafter the credit card companies see you as a higher credit risk and bump up your interest rate up to 30% or more. Upon the interest rate being increased your minimums double and potentially even triple.
At this point you are trapped back in the thick of the ruthless credit card 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 get another debt consolidation loan and your debt to credit ratio is too high to get any sort of loan, before you know it filing for bankruptcy looks like the simplest route out of this situation. However filing for bankruptcy will mark a very damaging scare on your credit report.
I have spoken with hundreds of Americans over the past 15 years who have done just what I described in the previous paragraphs. And every one of them said the same thing. They thought they were going to be able to handle it and did not have the foresight to see themselves ever getting back deep into credit card debt again and wished they had someone who would of advised against making the move towards a debt consolidation loan.
For many who were stuck in this situation the best choice at that time would have been to consider debt settlement. Even though through settlement the credit score will be lowered it is by far the quickest method to becoming debt free while at the same time saving money.

Steve Bis is a credit card debt analyst with the US Consumer Advocate, which practices in credit card debt reduction.