Secured Debt Consolidation Loans for Home Owners Can Spell Disaster

For starters what is a secured debt consolidation loan. A secured debt consolidation loan involves collateral. In order to obtain a loan like this the lender will request a valuable piece of property such as a car, bike, or boat. In most cases people use the equity from their home as a secured debt consolidation loan. These loans usually come with a higher interest rate, however usually less than that of credit cards. Most often people are seeking a loan of this sort so they can pay off their credit cards and then just have one monthly payment on the loan. Which at first may seem like a very fitting and wise move to make. However, the risk involved is great which can lead to foreclosure or bankruptcy. You see the real underlying problem here is people’s addiction to plastic.

The statistics have shown that most people who use a secured debt consolidation loan to pay off their credit cards end up right back in credit card debt again. Why? Because they never addressed the problem they have with the misuse of credit cards. It is all to easy to get back into debt, usually when the cards are paid off people do not close the accounts. They now have no balances on these cards with high credit limits just waiting to be charged on again. All it takes is one emergency that could cause you to start having to use your cards again.

The second time around is not so easy. Because now there are two secured obligations that must be met before the newly accrued credit card debt. Falling behind on your mortgage can result in losing your home. For many this situations leads to financial disaster. Having to claim bankruptcy because there is just no way to pay for the credit card debt as well as everything else. In hindsight many people wish they would of thought more thoroughly about whether a secured debt consolidation loan was a wise financial move.

In essence what you are really doing with these loans is transforming your debt. You are taking your low risk unsecured credit card debt and transforming it into a high risk secured debt. Which when you really think about it is not at all a smart financial move.

However with the high number of foreclosures occurring right now in the sub-prime mortgage industry, lenders have been a lot tighter on offer these types of loans. Most people seeking these loans would be considered a high risk, due to the large amount of debt they are already in. Combine high risk consumers with the lenders having to tighten up on loans, makes secured debt consolidation loans not possible for many. An alternative is credit card debt settlement, and if that won’t work for someone the only real option left is bankruptcy