debt, including credit cards, motor vehicle and signature loans,
defined as debt not secured by real estate is at an all time high
in America and it is a very troubling sign to consumer educators,
because there appears to be no end in sight. The results of all
this unabated consumer spending includes a tripling of the number
of credit counseling agencies, a new cottage industry of debt negotiators
and debt settlement firms, and an ever increasing number of personal
bankruptcy filings," says the nonprofit Institute of Consumer
Financial Education (ICFE), a San Diego based nonprofit group dedicated
to helping people improve their spending, increase their savings
and using credit more wisely.
Naturally, many people
with high credit card and other debts are looking for a relatively
easy way out. Because 'revolving credit card debt' accumulates on
a daily basis, many consumers find themselves feeling hopeless,
fearing they will never get their debts down to a manageable amount,
there by always finding themselves on the money-merry-go-round.
It is no wonder there are now home equity lenders geared to making
money while helping people out of their credit card and other debts.
The home equity and
no-equity debt consolidations loans now advertised continuously
on TV, radio and in the newspapers may sometimes be a good decisions,
however don't sign on the dotted line without considering the negatives
as well as the positives. On the positive side, using a loan secured
by your home to pay off high interest credit cards makes sense when
you look at the numbers.
First of all the interest
is almost always at a fixed lower rate of interest, so in comparison
to the interest rate on credit cards, you will save money. Also,
because the new loan is secured by real estate, the interest is
often tax-deductible. Finally, your monthly payment is likely to
be a lot lower than the combined monthly payments of all the debts
you can wipe out. So, a home equity loans sounds like a no-brainer,
The biggest danger to
home equity loans is homeowners gamble their house they won't ever
have a problem making the payments. At least with credit card debt,
no matter how deep in debt you may be, no matter how unable you
may be to pay the bills, they can never take your house. So, before
you commit your home to such a loan, you better be certain you will
be able to able the payments.
Another huge negative
to this type of loan is the danger of getting into trouble with
credit cards all over again. Here's why: If you take out a home
equity loan, pay off all your credit cards, but not close out those
paid off accounts, you then may run up your credit card debt again,
Then you will have more credit card debts AND your obligation to
pay off the home equity loan. If you have learned your lesson about
credit cards and take out a home equity loan, then close out all
the credit card accounts because you are betting your home on it.
As for the reduced monthly
payment of a home equity loan, the payment may be less, remember
however, that a home equity mortgage is usually a commitment lasting
anywhere between 15 and 30 years. That is a long time to pay off
credit cards and other consumer debts.
The last big negative
to taking pout a home equity loan is that it strips you of any flexibility
you may have should you decide to sell your house. This is especially
true if it's one of the home equity loans that exceeds the actual
value of the home. In order to sell a home, all debts on the house
has to be cleared, including first and second mortgages and home
equity loans. So if you owe more on your house than its worth, you
may have to make up the difference to sell it. And chances are,
if you are in this predicament in the first place, you won't have
that kind of money lying around.
If you need help reducing
your debts, and or "Mending your Spending,” visit the
ICFE's Web page at: http://www.financial-education-icfe.org. The site includes helpful
sections on increasing savings, using credit wisely, plus "How
to set up and implement a spending-plan" (with a one page work
To receive the same information
by mail, please send $1 and a self-addressed, 60 cent stamped envelope
to: ICFE Money Helps
PO Box 34070
San Diego, CA 92163.
About the ICFE:
The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation). The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely.
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.
The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org). CASDRAP disbanded in 2010, shortly after the web site project was completed. In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.
The ICFE is also an on-line help for consumers who spend too much. ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.
Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org. Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G, a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.