Deal with Your Debt: The Right Way to Manage Your Bill$ and Pay Off What You Owe

The Dangers of Home Equity Lending

Katy owned a nice house in a Los Angeles neighborhood where prices had been growing at a double-digit clip. But the rising value of her home wasn't making Katy wealthier. Instead, every year or so Katy would drain off her equity to pay credit card bills, replace her late-model car, or take a vacation. She thought she was being smart by taking on tax-deductible debt. Instead, she was blowing her most important asset with pretty frivolous spending.

Her borrowing got to the point where she had very little equity left. When she tried to refinance her home loans, she learned that lenders wanted to charge her much higher interest rates because her existing house debt already totaled nearly 100% of the value of her ...