Take Notice Secured Debt Consolidation Loans Can Send You To...

First what is a standard debt consolidation loan? This is when you use something of value that can be used as collateral to obtain a loan, in the majority of situations people use the equity in their home. Initially this should seem like a very easy option to deal with a debt situation that is spiraling way out of control. You merely acquire the debt consolidation loan enabling you to pay all your debts and then be required to make one monthly payment, instead of making numerous monthly minimum payments to all your various creditors throughout the month.

Now let's take this predicament and put it under the magnifying glass. First, this is known as 'debt transformation' a method of moving debt from one place to another. All you did was transition your low risk unsecured debts into higher risk debt that is now secured by your house. This is where the real problem occurs, because if you experience financial difficulties again they can foreclose on your house. Many individuals don't seriously consider this scenario when taking this approach. People think they resolved their problem by using the equity of their homes to pay off debts, but in reality are setting themselves up for a much devastating problem.

People pay off their cards with the debt consolidation loan secured courtesy of their home and now carry a balance of zero on these cards. However people will not refuse to give the cards up, which in the long run will lead to them being charged on. Using credit cards (plastic) for many people is an underlying subconscious addiction, credit card junkies, and the disheartening part is most debtors are in denial about this. Stats have shown that after five years 80% of debtors who use this method of credit card debt relief end up with the same credit card debt problems and now a higher mortgage payment.

What happens next is you take a peek over your shoulder only to be stunned with a big mountain of credit card debt behind you only to wonder how in the world you got there again. Most of instances it began from that loney 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 28% or higher. Once the interest is bumped up your month minimum payments double and potentially even triple.

At this point you are stuck back in the middle of the ruthless credit treadmill, however you have a second mortgage that must take priority over the credit card debt or possibly risk your home being foreclosed. In this situation now you do not have any equity to get another debt consolidation loan and your debt to credit ratio is so bad making it impossible to get any sort of loan, before you know it filing for bankruptcy looks like the simplest route out of this mess. However filing for bankruptcy will mark a very damaging scare on your credit report.

I have spoke with thousands of debtors over the last 17 years who did just what I described above. And every one of them said the same thing. They really did think they were going to be able to control the situation and didn't 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 Americans who were cornered in this predicament the best decision at that time would have been to look into debt settlement. Even though with settlement the credit score will be lowered it is the timeliest way to become free of your debts while at the same time saving a vast amount of money on what is owed.