Too often these days, borrowers are hurt by a system for managing their money that just doesn't work. The best way for the average consumer to get out of debt right now is to get a mortgage loan that pays off one debt while letting them continue to spend too much and build up more debt. Accept it. We're in trouble because we borrow money. This problem is called "interest-only mortgages."
Loan companies keep giving out credit that goes way beyond what is considered a safe ratio of debt to income. This is definitely a bad thing to do. The average consumer owes more than ever, and their credit card debt is getting bigger and bigger all the time. It starts right away. There were recruiters in the hallways of campus buildings handing out credit card applications and promising credit to young, naive college students. Other people who aren't in college but are still part of the overly eager-to-spend public continue to flash their credit cards and buy things that put them further in debt. How do they plan to handle their credit card debt in the end? They'll get an interest-only mortgage to pay off the credit card debt they keep getting but can't really pay off. In the end, they'll have credit card debt that doesn't really go down and a mortgage loan that keeps going up. As I already said, a bad way to handle money.
The good thing about an interest-only mortgage is that it turns a growing debt that can't be deducted from taxes into a growing debt that can be deducted from taxes. Nice, huh? Actually, no. If you are spending more than you can afford, an interest-only mortgage makes no sense to anyone but the mortgage company. They really don't want you to spend less and take care of your money well. After all, if you made such a smart choice with your money, it would mean less money for them.
Consumers should not follow the herd and use mortgage companies that advertise that they can help people with bad credit pay off their credit card debt by giving them interest-only mortgages. Instead, consumers should be told to think about how they spend their money. Learning not to overspend would solve the problems now and in the future. An interest-only mortgage, on the other hand, doesn't help anyone in the long run in any way. Just put, it's a bad deal.
Sure, lending money to people with bad credit is a risky business. But a mortgage shows that a good, solid piece of collateral is here. Putting a solid, valuable asset at risk for an interest-only loan is the textbook definition of bad judgement. Any time you take on a mortgage debt, you should think about it carefully. If a consumer doesn't have a clear understanding of how mortgages and interest work, they may make bad decisions that will hurt them for years to come, especially in the financial world. Unfortunately, most of the people who are hurt by decisions like interest-only mortgages have a history of taking risks, having bad credit, or making bad decisions, so they feel like they have nowhere to turn and are trapped.
With all the rules and numbers about good and bad credit ratings that are shown to the public and published, it is hard to believe that interest-only loans are even legal. Where are the people in charge of the lending industry who are supposed to make predictions and keep it safe? Definitely not thinking about this idea, that's for sure! Alan Greenspan may have been sleeping when this type of mortgage loan was introduced, but one thing is for sure: someone needs to wake him up before the mortgage brokers come up with another great way to make consumer debt reach an all-time high.
