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September 24, 2008

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These are all great ways to sabotage your own finances. It amazes me how many people get in to debt that is way over their head under the rationale that "the credit card company/bank/mortgage company approved me for this credit limit so I thought that I could pay it back."

RDS

Sadly I have worked two years for a lender who has targeted equity loans for just that purpose (paying off credit card debt), among other things. In my time here, I have seen MANY people simply charge their credit cards up to the credit limit again and, since they are now maxed out on their equity as well, put themselves in a tough situation. As RDS comments above, just because the mortgage company approved then for this credit does not mean that it is the best route to take. The change needs to take place in the heart and attitude of the borrower--otherwise debt will never go away and will probably get worse. I've seen it time and time again.

I tendered my resignation yesterday. Who knows where God will take me from here... :-)

The only reason I can think of for a HELOC is maybe for some home improvements. Even then, I would not do it. But at least at that point you are adding value to your home. But taking out the equity, you are at best making it a wash. Just be patient and plan ahead.

I usually agree about car title loans, but when I met my husband, he had a car loan for 2.99%. We are earning more than that in interest, so it seems silly to pay it off. (And in case you are wondering, it was financed through his credit union, not one of those scams where they give you a higher price on the car for low financing). So I guess like the home equity, it's only "mindless" if you don't put thought into it to make a wise decision. (how's that for a definition?)

I have used a home equity loan to finance the down payment on a new home. All of my equity was tied up in my old home and I did not have the cash required by the builder to put down. I did however, have the equity in my old home which I then immediately put up for sale. It worked well for me. In addition, as soon as I moved into my new home I obtained a HELOC as a form of insurance only in case I lost my job and needed money to pay expenses to live on. I have never tapped it in 5 years, but still have the LOC in case I need it for an emergency. But paying off credit cards because I bought too much stuff that I never needed in the first place is not an emergency.

LC,
I think they are referring to those annoying commercials saying "I got my title back with..." as car title loans. Those are ridiculously high interest rates. They are NOT the same as a car loan.

We did a HELOC to help start a business. At that time we had about 40% equity in our home. We took out enough to begin the business and still have at least 20% equity. Would I do it again? Probably not. The business isn't doing great, and we have sold that house. Fortunately, even with the dramatic decrease in the price of homes, we still have about 10-15% equity in that house. I certainly would NOT do it to pay off debt, etc.

The first 6 on that list are bad ideas for sure. The payday and car title loans can amount to loan sharking depending. Around here they were charging APR rates of up to 500% for short time periods until the laws changed.

HELOCs really do depend on what you're doing with it and what equity you've got. Its not necessarily 'brainless'.

Jim

I did use a margin loan to service receivables briefly when my company had to float a receivable for six months when my little computer company sold a bunch of computers to a government agency. The deal was highly profitable - or we wouldn't have done it - so it was worth the money and we wouldn't have had any cash otherwise (and the stock the margin loan was against was not good to sell at that time and ended up going up quite a bit later).

Once the check came, we paid off the note.

This reminds me of the movie "Father of the Bride". Don't get me wrong, I loved the movie, but my wife and I differed on one thing. I hated the fact that Diane Keaton's character chastised Steve Martin's character for trying to be frugal (although I'll admit Steve Martin's character went over the top in that frugality). The implication was that if you try to be frugal in any way on your daughter's wedding, you are chipping away at your daughter's happiness, as if your daughter can't be happy unless a ton of money is spent. (Sigh)

28K for a wedding? Insane, whether you have the cash or not. My wife and I spent about $12 on our wedding. Her parents helped with about 10% of the cost, and we paid 85% with cash that we had saved. Some went on credit cards, but were paid off in a couple of months (I include the gas to the wedding and honeymoon in the budget, it was a lot of driving. I also included hotels and other incidentals). We saved for this event by saving $100 a paycheck each for about a year and a half. We added a little extra here and there, and interest rates were better then.

It is pretty hard to believe what people with do to get quick cash. I know for our wedding we paid cash all the way and we were forced to give up a lot of things we would otherwise like to have had, but at least we didn't have the debt hanging over us.

If people could only realize that they first have to control their spending habits before they can control their debt.

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