Debt consolidation is one of the worst debt elimination options you can pursue. This procedure involves the merging of high-interest credit card debt and other unsecured lines of credit into a lower-interest “secured” loan. By getting this loan, the borrower can benefit from a lower monthly payment. There are also some tax benefits. However, the cons of the debt consolidation option generally outweigh the pros.

The risk in acquiring a debt consolidation loan is the tradeoff of “unsecured debt” for “secured debt.” This exchange is normally achieved through the acquisition of a home equity loan, otherwise known as a second mortgage loan. This permits the borrower to pledge the equity in his or her home as collateral to guarantee loan repayment to the mortgage lender. Thus, in the event of a mortgage loan default, the lender can foreclose on the borrower’s property to collect on the outstanding debt. Looking at these risks, pursuing a debt consolidation alternative would be a more logical firsthand approach.

There are various reasons why you should avoid getting a debt consolidation loan. Statistics indicate, “75% of the people who get home equity loans assume MORE debt than they previously had.” Besides the lower loan amounts sought by borrowers, mortgage lenders often entice borrowers to take out debt consolidation loans based on the higher equity values on their properties. For example, if you need to consolidate $20,000 in credit card debt and your home has $50,000 in equity the mortgage lender may convince you to take out a $50,000 debt consolidation loan, so that you still have $30,000 in available credit. But as soon as you decide to get cash out, or to make non-essential home improvements or purchase luxury items, you’ll sink deeper in debt.

Another reason to avoid getting a debt consolidation loan is to prevent being the victim of a predatory lender. A common predatory lending practice is to manipulate the borrower to repeatedly refinance his or her mortgage so that, each time he or she takes out a new debt consolidation loan, the mortgage broker can earn more loan points and fees. This predatory lending abuse has caused borrowers to eventually owe more on their debt consolidation loans than the equity on their properties. Mortgage brokers are also notorious for tricking borrowers into getting a variable interest rate debt consolidation loan known as an ARM (“adjustable mortgage rate”) loan. This bait and switch tactic traps the borrower with a loan with an initial low interest rate. But once the variable interest rate goes up, the borrower is hit with an unbearable mortgage payment, leading to imminent foreclosure, and the possible loss of the borrower’s property.

Considering the pros and cons of a debt consolidation loan, a debt consolidation alternative, such as the debt relief benefits of the National Debt Relief Stimulus Plan, would make more sense! For more information on our debt settlement program, please call 1-800-213-9968.