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Hey Veterans: Are You Drowning In Credit Card Debt?

The scenario: You have debt, and lots of it, but you also happen to have a home that you have owned for a while.  You will probably find your dinner meals being continually interrupted by telemarketers asking you the following questions:

Do you currently have equity in your home? Are aware of the “financial power” locked in your home’s current market value?

Well, if so, be very careful! Many financial planners will tell you to that the one time it is ok to use debt to pay debt is to use a HELOC or an equity line of credit to quickly pay off high-interest credit card debt.

Our advice: There is never really a good time to use in your debt elimination plan. So normally we do not suggest it.

I’m not a fan of this plan of attack for one simple reason – if you get yourself into so much trouble that you eventually decide to declare bankruptcy, your card balance collection is not secured by your assets, while a mortgage is guaranteed by your home.  So this transfer of debt actually endangers your home!

At the very least, this means that you have attached credit card debt to your home.  Before this, the worst that credit card companies could do to you was go to court and try to get a judgment against you. However, when a debt is backed up by the value of your home – the bank has a real, legitimately painful way to get their money back.  This leverage they’d now have can force you to either stay with the loan or to give up your home.

However, it is your call, so you must figure out what will allow you to rest at night. If your credit card debt is currently manageable and you prefer to save on interest charges in the short term, an equity line of credit will allow that. If you think there is even the remote possibility that you may be forced to file bankruptcy, it may be this a tragic mistake that you vacate your home.

There are many creditors out there who really prefer to place a lien on your home to get your money or assets.

Questions you must ask yourself before pulling the trigger:

  1. Are you using your home equity as an excuse to continue your bad spending habits?  Most people do not realize that new loans that pay off old loans do not really address the bad credit spending habits that are programmed into them.
  2. Are you able to stop spending unnecessary money? If so, perhaps you can save your way out of your current situation.
  3. Do you have any investments in a 401k or other type of savings program? If so, being your own banker is one of the best things you could do.  You’d take a loan against your investment, then pay yourself interest. Combine this with new spending habits and you could be on the path to wealth instead of debt in no time.So what are you going to do? Are you going to address the root of the problem? Will you seek help for the disease? Or will you merely continue to put Bactine on the symptoms and hope for the best?   The sooner you stop with the accumulation of debt you can start planting your money tree orchard, which will bear you good fruit from your labors years from now.

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