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Hello Fellow "Fools"

My wife and I bought a house late last year. We were excited, and we love the house that we bought. As first time buyers, we had no idea how much closing costs we were going to pay. I took out a $20,000 loan from my 401K. I hated to do this, but I felt it was necessary. I figured $20K would be enough, besides I wanted to minimize the loan to reduce the opportunity costs.

It turned out that we paid $17,000 in deposit, closing, and other miscellaneous costs. That left us with only $3,000 for furnishing. Needless to say, it was not enough. This disappeared very quickly, which left us to use credit cards the rest of the way. Because of the pool, our utility bills sky-rocketted. Also, we still have to eat and buy clothing. As you may have already guessed, we over-extended our credit. Now, we owe $25,000 in credit card bills! It's amazing how you can run up your bills if you don't watch it carefully.

Anyway, I am looking into home equity loans. I am thinking about consolidating our 2nd mortgage (we have two loans (80%/20%), with the second having a balloon payment) along with our credit cards. Being in the house less than one year, the best we could do is 13.55%, which I think is outrageous!!

I am also looking into debt management, and it seems to be the best way to go for us. What I was told was they will renegotiate and lower our credit card interests, pay a minimal charge (1%) each month, and it won't ever affect my credit report. In fact, the agent claims, my FICO score will be enhanced because your report reflects consistency. After six months, they can renegotiate if I wish and pay even less in interests. With my bills, I will be paying around $600, 6-8% interest, monthly for about six years. That's a great savings, I ran the numbers yesterday!! The only drawback is the credit cards will be suspended until they are paid off. But, since my credit rating isn't affected, I was told that I can still qualify to apply for other loans or credit cards.

I would lose out on tax deductions, but my house will not be collateral either. So, I'm leaning towards this option. But first, I wanted to hear from you. Is this too good to be true? Are there any pitfalls? I am dealing right now with a company called Debt Management Credit Counseling Corp., are there any other companies you can refer me to? Any help you can provide will be of great help.

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