WHY SHOULD I NOT DO A DEBT CONSOLIDATION LOAN TO PAY MY DEBTS?

People who take out debt consolidation loans often lose their homes to foreclosure. People who can't pay credit card debts will, as the saying goes, "rob Peter to pay Paul". by using credit cards to cover income shortfalls. One credit card is used to pay living expenses and`the ever-increasing interest on other credit card debts until available credit is exhausted.

At this point that many honest people try to get a debt consolidation loan. On the surface, a debt consolidation loan appears to be a good thing. The debt consolidation loan lowers the amount of payments due each month. The thought is "if I take a debt consolidation loan to eliminate $800 in monthly credit card debt payments at 15-24% interest and replace in with a $400 per month debt consolidation loan at 8% secured with my home or vehicle I have improved my debt situation and solved the problem."

Sounds good, right? It isn't, for several reasons. First, though the interest rate on a debt consolidation loan is lower, you will pay many times over more in interest and finance charges over the extended life of the debt consolidation loan than you would have if you had made regular payments and an extra ¼ payment per month. Second, you have traded an unsecured debt that could be wiped out in bankruptcy for a secured debt that cannot be wiped out without giving up your home or car. If you think you can afford the payments, ask yourself what happens if you have an interruption in your income due to illness or injury or are laid off or have you or your spouse's income goes down for any reason? Third, if you cannot realistically afford or are going to have a hard time making the new lower payments on a debt consolidation loan, you can lose your home to foreclosure or your car to repossession.

Once you take out that secured debt consolidation loan, you have gambled your home or vehicle on the outcome. If things happen that make it impossible to pay the payments, you lose. There is no going back, no second chance.

Over 90% of all foreclosures are on homes that have a debt consolidation loan against them. What is your home or vehicle worth and what would you do if you lost them?

Most people we see in our bankruptcy law office who own homes have attempted to or, worse yet, have succeeded in getting a debt consolidation loan against their home to "get out of debt" and pay their debts. Often it is not enough. They fall behind on their debt consolidation loan. Many lose their homes or vehicles.

Don't make the mistake of believing you can borrow your way out of debt.

Instead of risking the most important assets you own, consider the bankruptcy options available under the bankruptcy code. Chapter 7 bankruptcy will eliminate debts that are unsecured debts while you keep your home, vehicles and other assets. By the way, filing bankruptcy does NOT mean that you are not allowed to pay these debts later if you want to. It only means the creditors can't harass you.

Were Chapter 7 bankruptcy is not appropriate, a Chapter 13 bankruptcy debt consolidation and debt reorganization plan may solve your debt problems. With a Chapter 13 bankruptcy debt consolidation and debt reorganization plan, you can pay the unsecured debts anything from nothing to 100% of their claim over 3 to 5 years with NO INTEREST and NO LATE CHARGES. If you want to see how valuable that is, just add up the monthly interest and late charges from your latest credit card debt bills. Multiply that figure times 60 months and get out your Rolaids.

At Fraley & Fraley, California Bankruptcy Attorneys, we would be happy to review your situation with you and give you the legal advice to see what options are best for you. We don't pressure anyone to do anything. We are here to inform and advise you and give you straight answers to all your questions.

Time after time, I have had clients tell me "if we had only known these things before we gor a debt consolidation loan against our house (or car), we would never have done it." Don't let this be you a year or so down the road. Contact us NOW for your FREE BANKRUPTCY ATTORNEY CONSULTATION. You won't ever regret having done so.