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First what is your typical debt consolidation loan? This is when you use an asset of value that can be used as collateral to aquire a loan, in many cases those in debt use the equity in their home. At first this could seem like a simple and easy choice to handle a serious and potentially out of control debt situation. You simply obtain the secured debt consolidation loan enabling you to pay all your debts and then be required to make one monthly payment, instead of making numerous monthly minimum payments to different creditors throughout the the course of the month.

But let's take a closer look at this situation. First, this should be called 'debt transformation' a method of transferring debt from one place to another. In reality what you did was transform your lower risk unsecured debts into high risk debt that is now secured by your house. This is where the precarious situation begins, because if you encounter financial difficulties again they can foreclose on your house. Many individuals do not even think about this nightmare scenario happening when they take this approach to their debt problem. Debtors think they have found an answer to their problem by not having any more credit card debt, but in reality are positioning themselves for a much greater problem.

People pay off their cards through the debt consolidation loan secured by their home and now have no balance on these cards. But will not submit to giving the cards up, which somewhere along the line will lead to them being charged on. Using credit cards (plastic) for many debtors is a subconscious addiction, credit card junkies, and the disheartenting part is most people are in denial about this. Statistics have shown that after five years 80% of debtors who use this avenue of credit card debt relief end up with the same credit card debt problems and now a higher mortgage payment.

What happens next is you sneak a look over your shoulder only to be shocked with a huge mountain of credit card debt behind you only to speculate how in the world this happened all over again. Most of the time it started from that loney credit card you kept out just in case. Shortly thereafter the credit card companies view you as a higher credit risk and bump up your APR up to 30% or more. Upon the interest rate being raised your minimums double and possibly even triple.

At this point you are stuck back in the thick of the ruthless credit card treadmill, however you have a another mortgage that must take priority over the credit card debt or possibly risk your home being foreclosed. At this point you don't have any equity to do it again and your debt to credit ratio is far too high to get any type of loan, going bankrupt becomes the simplest way out of this mess. However filing for bankruptcy will leave a very damaging scare on your credit history.

I have spoken with hundreds of debtors over the past 16 years who have done just what I described above. Everyone has the exact same thing to say. They thought they were going to be able to control the situation and did not foresee themselves ever getting back into credit card debt again and wished that somebody would have told them not to obtain the debt consolidation loan.

For many who were trapped in this predicament the smartest decision at that time would have been to enter into debt settlement. Even though through settlement the credit score will be lowered it is the timeliest method to becoming debt free while at the same time saving a large amount of money on what the current balance is.