Using home equity or retirement savings to pay off credit card debt is never a good idea. In fact, it is financial suicide. Unfortunately, more and more lenders are pushing people in that direction. If debt consolidation is such a great way to get out of debt, why are so many Americans still struggling just to make minimum payments? The real question is why are debt consolidation loans such a bad idea? They are a bad idea, because so many Americans are still in debt!
In recent years, many Americans have taken advantage of debt consolidation loans in an honest attempt to repay their credit card debts only to find that they are now deeper in debt and worse off then ever before. In fact, according to the Federal Reserve, by the end of 2004, Americans borrowed a total of nearly $830 billion dollars against the equity in their homes, but just 7 years earlier, Americans borrowed roughly $415 billion. That is a 50% increase in borrowing; not debt reduction, but loans that are pushing Americans further in debt. Debt consolidation loans to not address the real problem….spending. People need to be educated as to why they are getting into debt in the first place. In the long term, education is critical in correcting debt related problems.
Unfortunately, banks always advertise that using a home equity loan or line of credit is the fastest and most effective way of getting rid of high interest rate credit card debt, but nothing could be farther from the truth. Such programs rarely work for people who are suffering from debt. While some of the fundamental ideas behind a debt consolidation loan are sound, people can not borrow their way to financial freedom!
The concept is simple; a home equity or debt consolidation loan promises to provide a lower interest rate than the one currently being paid to creditors. Additionally, debt consolidation loans boast that that the interest you pay will most likely be considered tax deductible. Based on these concepts, debt consolidation would seem like a great idea. Remember the old adage of if it’s too good to be true, than it probably is?
Looking at this logically, based upon statistics, most of the people that choose the debt consolidation route to help eliminate their debts usually end up charging more in the near future; it is a vicious cycle. In the end, when all is said and done, debt consolidation loans typically leave consumers with less equity in their home to use when a real emergencies happens; they cause people to replace unsecured debts with secured ones. What was once unsecured debt, which could most likely be resolved through debt settlement, credit counseling or even bankruptcy, has now been exchanged and secured with the value of something far more important, your home.
If you are suffering from credit card debt and are searching for help, consider debt settlement, credit counseling and, as a last resort, bankruptcy before ever considering a debt consolidation loan as a way to achieve debt relief. In most cases, you will be far better off.
Alan Barnes IAPDA Certified Debt ArbitratorPresident & CEO of Debt Regret,
Inc.http://www.debtregret.com
Article Source: http://EzineArticles.com/?expert=Alan_Barnes
Tuesday, January 9, 2007
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