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Christian Financial Advice and Biblical Stewardship

Consumers Unwise to Use Home Equity Loans to Handle Debt

  • Ed Thomas Agape Press
  • 2006 3 Mar
Consumers Unwise to Use Home Equity Loans to Handle Debt

A Christian radio host, financial expert and consumer advisor is warning against the false spendable income Americans have created for themselves with home equity loans. Debt-Proof Living author Mary Hunt says those loans -- available because of the increased value of homes during the housing boom over the last few years -- are encouraging a dangerous practice.

Figures from several national industry organizations ranging from bankers to the Federal Reserve to the National Association of Realtors tracked the nation's spending trends in 2005. Included was notice from the Federal Reserve that indicated consumer borrowing dropped for two straight months at the end of the year -- the first time such a thing has occurred in 13 years.

"At first blush," Hunt says, "it sounds fantastic -- wow, people are getting the message; they're reducing their credit card usage, they're paying them down, they're paying them off. And I think many people are."

But Hunt cautions observers not to celebrate yet. "Spending has not dropped; spending is still high," she notes.

Her research of the Federal Reserve's report shows it does not include borrowing, such as home equity loans. She contends that consumers were not cutting back. The issue, she says, is "how the people are paying for it" -- something she says is both "remarkable" and a "very scary thing."

The author and financial advisor says "it's a little scary to see that the home equity borrowing has gone up, and continues to go up. People are still using the equity in their homes to finance their daily spending."

Using that sort of approach, Hunt says consumers are ultimately accumulating a more dangerous kind of debt than with credit cards. "Because as bad as credit card debt is," she points out, "when people transfer that debt to their homes ... they are putting their homes at risk."

Combined with the record-highest card payment delinquency rate and record-lowest personal savings rate during the last year, Hunt says it does not bode well for consumers in 2006 -- unless they move to get out of debt.

Ed Thomas, a regular contributor to AgapePress, is a reporter for American Family Radio News, which can be heard online.

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