Originally published January 31 2005
Home equity loans are a useful, if risky method of paying off credit cards
by Mike Adams, the Health Ranger, NaturalNews Editor
With interest rates on mortgages falling, many people are using home equity loans to pay off their credit card debt. While it dramatically reduces the interest rates on the payments, it also creates a problem where the loan is secured with a home. After all, missing a credit card payment is expensive, but missing a mortgage payment is grounds for foreclosure.
Jim Hamilton made a late-year resolution to get rid of his credit card debt.
In December, when he refinanced his mortgage through ACA Mortgage in Wilmington, Hamilton borrowed an additional $15,000 to pay off debt he was carrying on five credit cards.
Hamilton is among thousands of people locally and nationwide who, over the past several years, have replaced high-interest credit card debt with relatively low-interest mortgage or home equity borrowing.
A study released last week by New York-based advocacy group Demos said the wave of borrowing is eroding the ownership stakes, or equity, of homeowners.
Americans own less of their homes today than they did in the 1970s or 1980s, according to Demos, which estimated that the average American homeowner's equity has fallen from 68.3 percent in 1973 to 55 percent in 2004.
Ed Mierzwinski, of the Washington-based Public Interest Research Group, said he generally recommends against paying off credit cards with a mortgage or home equity loan.
He said consumers must recognize that they are pledging their homes as collateral when they take out a mortgage or home equity loan, a key difference from credit card debt, which is not collateralized.
"I don't think it's a good idea to trade unsecured debt for debt that's secured by your house," Mierzwinski said.
With part of the proceeds from that borrowing funneled to pay off credit card debt, the credit card industry has seen a sharp slowdown in growth of its receivables, the total amount cardholders owe.
Gerri Detweiler, a Sarasota, Fla.-based personal finance commentator and author of "The Ultimate Credit Handbook," said she recommends consumers proceed with caution when replacing card debt with home debt.
Hamilton, the Elkton homeowner, said he decided to get rid of most of his credit cards after he did the mortgage refinancing.
All content posted on this site is commentary or opinion and is protected under Free Speech. Truth Publishing LLC takes sole responsibility for all content. Truth Publishing sells no hard products and earns no money from the recommendation of products. NaturalNews.com is presented for educational and commentary purposes only and should not be construed as professional advice from any licensed practitioner. Truth Publishing assumes no responsibility for the use or misuse of this material. For the full terms of usage of this material, visit www.NaturalNews.com/terms.shtml