Chapter 4
Equity Line of Credit
Essential Idea: Use Equity in Your Home or Business to Obtain a Line of Credit from a Bank
Brian was not the greatest businessperson in the world. Sure, he had a nice wedding photography business that netted him a decent income every month, but Brian was not much for budgets. And given that Brian's was a seasonal enterprise, his inability to put money away for the fallow seasons of his business was a yearly problem.
His ingenious solution (or so he thought) was to use credit cards to live on during the winter months, when work was scarce. And how did he pay off the credit cards? Home equity. Brian lived in Los Angeles and had bought his little house back when it was still relatively affordable. All through the 1990s and into the 2000s, Brian's home went up, up, up in value.
He thought it would never stop.
So every few years, after having run up his credit cards and other debts, Brian would refinance his house using his increased home equity, pay off his debt, and go along his merry way. And then, around 2006 or so, Brian realized he could save money and make things even easier by simply getting an equity line of credit, which he did, for both business and personal use.
Well, you can imagine what happened. By 2008, Brian owed about $80,000 on his line of credit. But that was the year the housing market fell off a cliff and banks froze or canceled many lines of credit. Brian ended up filing for bankruptcy.
Are equity lines of credit still available? ...
