Dangerous Debt Consolidation Loans -

Home
>
Debt Consolidation
>
Dangerous Debt Consolidation Loans

Dangerous Debt Consolidation Loans

On the surface, debt consolidation loans offer cash-strapped consumers some relief from high interest rates. Looking deeper, consumers should be wary of both the pros and cons of this fast growing practice. In their simplest forms, debt consolidation loans are refinance agreements, second mortgages, or home equity loans.

All three loan options allow homeowners to cash out part of the equity in their homes in order to pay off other debts. For borrowers who have watched their homes appreciate in value, a debt consolidation loan can eliminate the burden of multiple monthly payments without significantly affecting the amount of their monthly mortgage payment. On a mathematical level, debt consolidation loans can make much sense. A home owner who struggles to make the monthly minimum payments on her 21% interest rate credit cards can roll those balances into her 7% mortgage. The debt doesn't go away, but the rate goes down by two thirds. In many cases, she would only continue to pay about the same amount per month for her mortgage, freeing up her cash flow for other uses. As a side benefit, borrowers can deduct a portion of their mortgage interest payments from their income taxes each year. Though not a huge savings, many taxpayers love the opportunity to look forward to a larger tax return.

The danger lies in the borrower's loss of security on two levels. First, if a home should suddenly depreciate, a debt consolidation loan customer could quickly find himself or herself "upside down" on the loan, owing more than what the house is worth. As long as that borrower continues to make payments, they'll survive. But, they will be unable to sell their home without absorbing a loss.

For families who need to move in order to accept job transfers or pursue educational opportunities, this can be a devastating blow. Second, although the lending bank handles paying off the customer's outstanding debt, the customer must personally close their old credit accounts. For many customers, the temptation to keep those accounts open is far too great, and they find themselves deeper and deeper in debt. In effect, the debt consolidation improved their cash flow, but reversed their financial course.

Without immediate intervention, these customers often find themselves on the road to bankruptcy. When investigating debt consolidation loans, consider your long-range plans. If you intend to stay in your current home for a long time and can handle the potential risk of depreciation, and if you can exert the willpower to close out your paid off charge accounts, then a debt consolidation loan may be a reasonable option for you.

Kevin Adelsberg is a writer for FDLoans.com. For additional articles and an extensive resource for everything about loans, please visit us at http://www.FDLoans.com

In The News:

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.londonstockexchange.com/en-gb/pricesnews/investnews/article.htm%3FArticleID%3D18817930cid=1255484992ei=idjwSJKfCqbU6gOE3pnaAwusg=AFQjCNFnYDyf4734bhjEHE2zawzr521HuwbConsolidation/b loans fail to stem tide of bdebt/b/abrfont size=-1font color=#6f6f6fLondon Stock Exchange,nbsp;UKnbsp;-/font nobrOct 8, 2008/nobr/fontbrfont size=-1In a study conducted by moneysupermarket.com it was discovered that of the 31 per cent of people who have taken out a bdebt consolidation/b loan almost two b.../b/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.moneynews.co.uk/5513/moneysupermarket-borrowers-going-deeper-into-the-red/cid=1255484992ei=idjwSJKfCqbU6gOE3pnaAwusg=AFQjCNEraftPuNZ21MBeQ7VBPteTQawqAgMoneysupermarket: Borrowers going deeper into the red/a font size=-1 color=#6f6f6fnobrMoney News/nobr/font/fontbrfont class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1255484992hl=ennobrall 3 news articles/nobr/a/font/div/font/td/tr/table

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd width=80 align=center valign=topfont style=font-size:85%;font-family:arial,sans-serifa href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://ap.google.com/article/ALeqM5ioHc80xKMiATnqCpK0cDKJzk_nPQD93N38E80cid=1256520021ei=idjwSJKfCqbU6gOE3pnaAwusg=AFQjCNEF8QrVHSnQZMRmcm0SxyV0MU1PXwimg src=http://news.google.com/news?imgefp=PHpjFV57kVwJimgurl=ap.google.com/media/ALeqM5i8TQqH0DArchUQ0LRNesmiuyzCgQ width=80 height=57 alt= border=1brfont size=-2The Associated Press/font/a/font/tdtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://www.moneyandmarkets.com/currencies-and-cotton-candy-rate-cuts-4-27439cid=1256520021ei=idjwSJKfCqbU6gOE3pnaAwusg=AFQjCNGv57VthMrVeytEyFsJCSrJYk3iwQCurrencies and Cotton Candy Rate Cuts/abrfont size=-1font color=#6f6f6fMoney and Markets,nbsp;FLnbsp;-/font nobr5 hours ago/nobr/fontbrfont size=-1What needs to happen is a period of cleansing and bconsolidation/b. Particularly with the banks. Everyone needs to know which banks are solvent and which ones b.../b/fontbrfont size=-1a href=http://www.citywebshopper.net/articles/includes/redirect.php?url=http://allafrica.com/stories/200810100423.htmlcid=1256520021ei=idjwSJKfCqbU6gOE3pnaAwusg=AFQjCNH99rS9tXVq353voMMo-4WcgrSXCwNigeria: Credit Crunch - Yar#39;Adua Seeks Private Sector Partnership/a font size=-1 color=#6f6f6fnobrAllAfrica.com/nobr/font/fontbrfont class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1256520021hl=ennobrall 435 news articles/nobr/a/font/div/font/td/tr/table

debt consolidation - Google News