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Mistakes that One Makes with Money II
by: Fiasco Mama
According to Suze Orman, one of the biggest mistakes that one can do is borrowing using a Home Equity Line Of Credit (HELOC) to pay off credit card bills
This is a move that can end up costing you your home. Your credit card debt is what's known as unsecured debt: There's no collateral the credit card issuer can force you to sell to collect on your debt. A HELOC - like a mortgage and a home-equity loan - is what's known as secured debt. Your home - or more specifically, your home equity - is the collateral. If you fall far enough behind on your HELOC payments, the lender can require you to sell the home to recoup the money you borrowed.
Besides,the HELOC just creates more unpaid debt:many people wipe out their credit card debt by rolling it over into a HELOC - and then run up new credit card balances again. This puts them in a bigger fix: In addition to the new credit card debt they now also have the HELOC debt to deal with.
You also need to be doubly careful with HELOCs in today's rising interest rate environment. In 2005, the average HELOC rate jumped from 5.62% to 7.25%.Today that rate is above 9 percent. If you took out a $25,000 HELOC in 2005, the monthly interest payments-which is typically all you pay during the initial "draw period"-have jumped from about $117 to more than $192; that's $900 more a year.
Source: Suze Orman
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