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Everyday Cheapskate: The 5 Questions My Readers Ask Most Often

Mary Hunt on

If you were to dive into my inbox, you might assume you'd find lots of questions on laundry, copycat recipes or what the best inexpensive fill-in-the-blank is. I do get lots of those. But it's questions about credit cards and consumer debt that come out the winner in that contest.

You, like I, may find that curious because I am not a financial planner or investment adviser. I can boast no licenses or certifications in those fields. I have life experience, and I have that in spades.

I've been horribly in debt, having owned 35 credit cards (yes, all the same time!) many years ago. I've foolishly leased a bevy of new cars. I've hit rock bottom, struggled madly to escape the sea of financial ruin, and am now onto the dry ground of living 100% debt-free!

I have learned a lot on the journey. What follows are the most often-asked questions and my answers, representing my own opinions. I invite you to take them for what they're worth.

Q: Should I take a home equity loan to pay off my credit cards?

A: No. The best way to understand this is to consider the worst-case scenario: What are the consequences if you cannot keep up with your payments?

 

If you default on a credit card account, the bank will charge you fees and penalties and trash your credit report. But they cannot take your home. But if you transfer that unsecured debt to your home using a home equity loan and then get into financial trouble, you could find yourself on the street with your recliner.

Defaulting on a home equity loan results in foreclosure. But it's more than that. Your home's equity is an appreciating asset. Left alone and allowed to grow over time, you will eventually achieve 100% equity, meaning you own a house free and clear. You'll never reach that goal if you keep looking at your home's equity as an ATM or secret savings account.

Q: Should I really put money into savings even though I have a lot of credit card debt?

A: Absolutely. You need an emergency fund -- a stash that will be there when you find yourself in a financial pickle. Here's why: If you do not have an emergency stash to cover stuff that happens (trust me, stuff always happens), you will have no choice but to run to a credit card for a bailout. You'll never get off the credit card debt treadmill if you don't stop adding new purchases -- even if it's an emergency. You need to save something from every paycheck (10% sounds about right to me) so you can eventually part company with credit card debt altogether.

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