Debt Consolidation Loans
I'm sure you've seen the TV ads:
"Pay off those High Interest Credit Card Bills — Lower Interest
Rates! — Lower Monthly Payments! — It's the Smart Thing to
do with Your Money!!"
Debt Consolidation Loans are unfortunately one of the most common solutions
people think of when they fall victim to financial problems. It is a
sad fact that about 75% of people who get a debt consolidation loan
find themselves in much deeper financial trouble than they were in to
begin with. The reason is simple:
You cannot borrow your way out of debt!
All consolidation loans do is transfer debt from one place to another
and is invariably a short term fix with long term pain. A debt consolidation
loan will not reduce the amount you owe. You will still pay back 100%
of the loan plus interest. This is not going to get you out of trouble
and most of the time will only make things worse.
Debt consolidation loans are normally secured against some form of
asset. Once you have taken out this loan, you have just gone from an
unsecured debt to a secured debt and have put your personal assets at
risk. Many loans are spread out over a 15 - 30 year period, leaving
you open to loss of any assets over this period. If you run into further
difficulty in the future you stand to lose the assets that secured the
loan - normally your home. Debt consolidation organizations get paid
big commissions for signing you up. The more they lend you the more
money they make. All these companies are thinking about is getting you
to take the maximum amount they can lend you! The higher your debt,
the more money they make. You will probably end up bound by a carefully
worded contract that can cost you all your legal rights provided by
federal law and hold the loan company harmless from any legal claims.
One reason that people take out home equity loans is that they can
get a tax break on the amount borrowed. Lets take a look at how beneficial
this is. With a mortgage you are only getting a tax break on the interest
you are paying, this means that you have to be paying out money that
you would not have to pay, if you had no debt, to get this tax break.
Basically, for every dollar you pay in interest you get back around
35 cents. Now if you think that sounds like a good investment, I will
be happy to send you 50 cents for each dollar you send me.
The IRS is advising consumers that they are cracking down on these
types of loans and that the interest paid on home equity loans for more
than the market value of your home is not deductible.
With credit cards, and other types of unsecured loans, there is less
that a creditor can do if you fall behind on your payments. With consolidation
loans, if you cannot make the payments or are even late on making your
payments, you can very easily lose your home. Why would you want to
go from an unsecured to a secured debt over a longer period of time?
The main problem that people run into is that once the debts are paid
off, they discover they have a whole new line of spending power:
empty credit cards. It is not normally long before these accounts
are once again run up to the max. This will leave you with both the
consolidation loan and these maxed out cards to repay. If you
are financially unable to pay the previous debt, how are you going to
repay the loan and the newly run up credit cards? This sometimes
leaves you running back for a second consolidation loan which makes
the problem even worse.
Remember, being in any kind of debt leaves you less spendable income
than you probably need to buy life's necessities. Although a consolidation
loan may give you a lower payment and a little more breathing room,
is that really going to leave you with enough spendable income to get
you through the next 10 to 30 years?
As a word of advice, if you do get a consolidation loan, after you
pay off your account balances CANCEL ALL of your credit cards and
throw away ANY offers of credit in the mail — UNOPENED. Debt
Consolidation is not a way out, but in many cases, a way into deeper
debt and worse financial problems.
A much better way to go is Debt Reduction.
In our Debt Reduction Program we take an aggressive approach to your
debt and reduce the total balance owed to the creditor. If you owe $20,000,
you will end up paying around $10,000 or less. This gets our average
client out of debt in around 15 - 30 Months.
We do not get paid by the creditor in any way for recovering your debt
for them. We are paid purely on a performance basis by you.
Don't risk losing your house with a debt consolidation loan!
4470 W. Sunset Blvd., Suite 216, Los Angeles, CA 90027
