(Editor's note: “Ask Sark” is a question-and-answer column. The information provided is for the individual asking the question. Each person’s situation is different and this information may not apply to you.)
Q. Should I use my home equity checking account to pay off some of my credit card bills? I got a notice from my bank that they may be reducing the amount of my home equity checking because the value of my home has gone down and I want to use the money before they reduce the amount I can take.
A. You are putting the cart before the horse. What you need to do is control your debt and stop charging to your credit cards. Paying off debt with more debt is only a short-term solution.
For more than a decade, people used their “equity” in their homes as a checking account. People let their credit card debt get out of hand. The “educated” financial experts put packages together of sub-prime mortgages, bound them, sold them, dissected them into so many parts that even today, no one really knows who owns what. People became obsessed with “flipping” homes and “speculating” on homes. People bought “hedge” funds, banking on unrealistic gains.
Well, it’s over!
The rottenness is being purged out of the system. We are seeing a once-in-a-lifetime deleveraging of global financial system, and a return by the global economy to a solid basis for a long term, healthy expansion.
No more “equity” checking. No more unreasonable credit card debt for the average person. No more taking homes from a place to live to a place to make a quick buck. Prices of homes have fallen to levels of affordability not seen since the early 1980s. No more homes for zero down, zero employment verification, zero net worth verification, zero control by banks and zero risk!
Nature goes through similar processes every few years with wild animals. Some die off during hard winters. Others die off when food sources are diminished during droughts. The things happening in the financial market are natural and normal. It is nature’s way of getting rid of the sickly and allowing the strong a chance to survive.
We do not think this process is over. But, surely, it is much closer to its end than to its beginning. And when it is over, the world will be a safer, sounder and more opportunistic place than it’s been in up-wards of 30 years – if not ever!
Our financial system and economy are going through a much needed house cleaning. This happens from time to time much like the seasons of the year. Thankfully, they come and go with much less frequency than our seasons.
Look upward, look to the future. Look across the valley and see that the greener pastures. Stay focused on what you can do and pretty soon we will have green pastures again and more grass than we can possible mow!
