Why shouldn’t I just take out a debt consolidation loan or refinance my mortgage?
This is an excellent question, and one I wish more people would ask. It is unfortunate, but many people who take out debt consolidation loans to pay off credit card debt often lose their homes to foreclosure. You can never borrow your way out of debt. Robbing Peter to pay Paul solves nothing.
On the surface, a debt consolidation loan appears to be a good thing. While this looks great, looks can be deceiving.
First, though the interest rate on a debt consolidation loan is lower than that on your credit cards, you will pay more in interest and finance charges over the life of the loan than you might realize because of the extended term. Second, and more importantly, you have converted an unsecured debt that could be wiped out in bankruptcy into a secured debt (often a second mortgage) that cannot be wiped out in bankruptcy. If the debt consolidation loan does not completely solve all of your financial challenges, you made a costly mistake and, at simply delayed the inevitable.