|
Local Impact Team Have you heard them? I’m talking about the recent flood of tv and radio ads, often featuring former star athletes and announcers who invite people to escape high-interest credit card debt problems and “save money every month!” How? Take out a second mortgage or home equity loan. Save money? Well, yes and no. Only those who have seen the debt monster for themselves can appreciate the sorrow produced by never-ending bills and late notices. Opening the mailbox is agony. Every ringing telephone means potential conflict with a hostile bill collector. Ulcers become a way of life and “give me peace!” is the heartfelt plea. People caught in the credit trap have an overriding goal: ESCAPE! What a relief to hear Fred Footballstar reveal the solution to all your debt problems: a single 800 phone call to XYZ Mortgage. In fact a second mortgage, a home equity line of credit, or a new first mortgage with a higher loan balance may be reasonable places to look when you’re caught in the credit trap. One loan stretched out over seven to ten years will almost certainly provide lower monthly payments. However, the greatest benefit is that the old loans have been paid off, and you are no longer being harassed by bill collectors. That peace of mind may be worth more to you than money! But do you really “save money?” Yes, your monthly payments may well be less and in that sense you are “saving” on dollars spent each month. However, you will never borrow your way out of debt! The amount of the debt has not shrunk and the length of time to pay off the debt is likely to be longer than before. Moreover, there are significant dangers to this strategy. Danger # 1: you might really think that you’re “saving” money and therefore you now have more money to spend! Husband to wife: “Wow! Our payments used to be $500.00 per month, and now they’re only $350.00! How should we spend this EXTRA money?” Believe me, friend, you don’t have any extra money. You just have longer-term debt. Paying that debt off, as fast as possible, should be your first priority. Danger # 2: you will continue your old spending habits (see Danger # 1) and thus create new debt with credit card spending. As many people have discovered, paying off credit card balances does not stop you from creating a whole new mountain of debt on those same cards! And while using the equity in your home might allow you to escape the trap once, it won’t work a second time. Danger # 3: you will believe and obey a lie. The lie: I can continue my out of control spending and self-indulgence. This is why I really get angry with so much finance company advertising. The message is, “You can escape your debt without changing your lifestyle. In fact, you’re not responsible. You don’t have to pay the piper. Just use the magic escape hatch (equity loan) and then go on your merry way.” Danger # 4: placing more debt on your home creates more risk of losing it. If you can’t pay the bill, your home will be foreclosed. You see, things CAN get worse! Being forced out of your home is no pleasant thought, but the possibility does exist. So Fred Footballstar’s magic escape hatch isn’t really magic. Home loans may be the only way out of a bad situation, but they are not an easy fix-it-all solution. Rather than a magic escape hatch, think of refinancing debt with home equity collateral as a rope. This rope provides you a way to climb up and out of debt, but only when combined with hard work and self discipline. Use it only after careful deliberation and prayer. © Copyright 2002 - 2003 Dayspring Fellowship |