Giving Credit Where Credit is Due

On several occasions we have derided Money Magazine - for their creative headline writing as well as for their views on real estate and home equity borrowing. Obviously, their biggest failing is in continuing to urge their readers to maintain a much higher percentage of equities in their portfolios than would seem warranted after the conclusion of a twenty year bull market in stocks - but there are advertisers that must be kept happy.

They do have genuinely good advice on many money matters, but most articles seem to send the subliminal message, "You can get rich. Just like these people. Buy stocks".

Or, maybe it's just me.

Anyway, at the end of the current issue is this wonderful story about a young man who has gotten himself out of debt - he seems to be quite proud of himself and very happy as a result. It should remind us all of simpler times:


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While it would have been nice for this story to have been featured more prominently than on the last page, credit should be given to Money Magazine for publishing this at all.

Greg is Not a Homeowner

While Greg seems to be a swell Los Angeleno, unfortunately, he's not a homeowner. If he were a homeowner, he could have skipped the Excel spreadsheet work, attention to detail, and bicycle riding, and just called his local home loan representative.

He could have made that credit card debt vanish instantly during a home refinance (well, not really vanish) or made it much more manageable by tapping some of his home equity via a line of credit.

While Greg's story is a terrific example of how things worked five or ten years ago for both homeowners and non-homeowners, this valuable lesson about debt unfortunately no longer applies for many homeowners.

Rising home prices and lenders eager to extend credit have made credit card debt very easy to deal with.

This cycle has been repeated many, many thousands of times in recent years - buy all kinds of things using credit cards, pay off the credit cards by borrowing against rising home equity - its appeal is the basis of most all television advertising for home equity borrowing, as best exemplified by ditech.com commercials.

If debt were like weight, rolling credit card debt into a new home loan, or paying it off using a home equity line of credit, would be the equivalent of getting a free wardrobe each time you gain ten or fifteen pounds - the weight is still there, but it's comfortable to carry around because of the new clothes.

Of course, it's also easier to overeat as a result of having the new, larger clothes, and this facilitates more weight gain. As long as there is a new wardrobe available at no cost, many people will continue to overeat.