Home Equity’s Advantages

A Debt like No Other

If you have incurred inefficient debt, one method of eliminating it is to transfer the debt to your home equity. Many people are reluctant to use their home equity to consolidate other debt. This reluctance really stems from a mind-set that is behind the times. Certainly, 30 years ago, if people refinanced their home or took out a second mortgage, you can be sure the neighbors were talking behind their backs about their financial woes. But using your home’s equity is economically wise. It provides low interest rates, a tax deduction, and an extended amortization.

However, even this form of debt should not be used recklessly. Defaulting on a mortgage of any kind has greater consequences than defaulting on consumer loans. Mortgage loans are secured by your home, which means that if you can’t make payments, you will lose your home. Consumer credit lenders cannot take such drastic remedies.

Avoid all other kinds of debt, including the high-risk debt of stock margin purchases and stock and commodity options. Leave those investments to the professional gamblers. Otherwise, buy only what you can pay for with cash.

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