In past years, homeowners who had accumulated too many credit cards and were struggling under the burden of high interest rates and staggering monthly credit card payments were lured by the banks with products such as HELOCs, which stands for Home Equity Lines of Credit. A home equity line of credit was an easy way for borrowers who had sufficient equity to get debt consolidation refinancing without having to qualify for it. If you had good credit (if you had a pulse), you could get a HELOC. Very few homeowners were turned down. Even some with bad credit were able to get approved if they had enough equity.
Those days are long gone and many experts blame the proliferation of this type of easy credit on the current economic and housing crisis that we face in the U.S. and around the world. As properties increased in values in an unchecked manner, more and more Americans cashed out with debt consolidation refinancing vehicles like HELOCs, Cash Out Refinances, Pay Option ARMs (adjustable rate mortgages) and interest only loans. When the real estate bubble burst after the fall of 2007, many homeowners were left with long term debt from paying off their credit cards. Many realized too late that they would have been much wiser just saving a little and paying off their credit cards than to take out long term real estate loans to pay them off.
To many homeowners it seemed on the surface that these were good decisions. The interest rate was better and the payments more affordable in the short term. Of course the payments were lower since they were spread over a thirty year period. Unfortunately after doing the math they also figured out that for every ten dollars in credit card debt that they paid off in debt consolidation refinancing, they ended up paying another twenty dollars in finance charges over they years.
The best way for debt laden Americans to have gotten rid of their debt was to never have incurred it in the first place. Many Americans got used to living beyond their means, spending more than they earned and accumulating mountains of high interest rate credit card debt. Frustration mounted when they realized that they could never pay off this debt just by making the minimum payment each month. Debt consolidation refinancing seemed like the simplest choice.
Now it is much tougher to get this kind of debt consolidation financing like a HELOC. Bank requirements are so stringent that any amassed debt or bad credit would mean that the loan application would be automatically declined. That is why there has been such a marked increase in the number of bankruptcies over the last two years, and a big reason why the credit card companies have increased their fees while lobbying congress to pass laws making it harder for consumers to shirk their debt by going BK.