Why
is Getting a Loan To Pay Off Your Debt Possible Financial Suicide?
Lets say by pledging your
house as collateral, the banks gives you a loan and you pay off
all your high interest credit cards and loans. So far so good --
now you only have the loan to pay off. BUT -- your credit cards
now have no balance and inevitably, you buy a few things here and
there, and before you know it -- your credit cards are back at the
limit. Now you have the 'consolidation loan' and the credit cards.
Everybody says, "No that won't happen to me" or
"I'll never do that" but people do this every day and
end up worse off that when they started.
In a study of the
efficacy of debt consolidation loans, the FDIC concluded that
"…some consumers will increase credit card and other
consumer debt after a debt consolidation package is completed,
thereby weakening their ability to repay outstanding debts and
increasing the likelihood of bankruptcy."
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