Fool.com: Home Equity Horror Story (Fribble) October 22, 1998

Thursday, October 22, 1998

Home Equity Horror Story
by George Runkle ([email protected])

About 10 years ago (1989), in my pre-Foolish days, I ran into a serious problem. I was deep in credit card debt (MasterCard, Sears, Visa, and I don't know how many store cards) and I was also deep in the "overdraft protection" on my checking account. The interest payments were killing us, and there seemed to be no way out. Then, we saw advertisements for home equity loans. Wow! They were low interest, would allow us to consolidate debt, and they were tax deductible, too! A win-win Foolish combination if I ever saw one. No downside at all, at least so I thought.

We went to the bank and filled out all the paperwork. We took out an even more "convenient" product -- a home equity line of credit. This was a line of credit that you could write checks against, "just like a checking account." Boy, this was really great! In short order, all the cards were paid off. We even paid down the car loan, and used a check to pay for a graduate course I was taking. It was perfect.

I guess the graduate course should have been a warning. It was called "Software Engineering" and had nothing to do with my occupation, or undergraduate major. It taught you, well, how to engineer software. I'm still not sure what that is, and I never completed the course. The money was wasted. Then there were the credit cards. I think I bought something I "had to have" by mail order with the MasterCard. Then my wife followed, and the spending contest began. Before you could say uh-oh! we were back up to our necks in credit card debt AND had dipped into the "overdraft protection" AGAIN. The problem was, we didn't change our habits. Worse yet, as we got the equity line of credit down, we wrote more checks against it! It still makes me cringe.

So, here we were in credit card/home equity line of credit/overdraft protection hell. What could we do? The obvious, which is what we should have done in the first place. We quit spending. Slowly but surely, we paid down our debt. Soon, all would be fine, or would it? It wasn't my fault that the economy crashed in 1990. Worse yet, in April of 1991 I was given a week's notice at my job. That wasn't so bad, I found a job in another state. All I had to do was sell the house and buy a new one.

The house sale was another fiasco, and that should be the subject of another Fribble. However, I had a huge lien against the property from the home equity loan. This had to be paid when the house was sold. Do you know what happens to property values in a recession? I do, they drop. If you think back, 1989 was a good year economically. Prices of houses in our neighborhood had skyrocketed. In 1991, however, they were lower than that year. Fortunately, we didn't borrow up to the full amount of the house, but, with real estate agent's commissions, we had no money from the sale. Fortunately, I was eligible for a VA loan, so I was able to get a house in the next city. However, the whole situation still scares me. What if I didn't find a job and couldn't meet the loan payments? My house could have been foreclosed.

This Fribble has been the hardest I've ever had to write. Of all the mistakes that I've made in my life, and I'm good at making them, this was the worst. The repercussions of maybe two years worth of spending and going in debt have taken years to work off. I can't think of anything else I've done that affected my life in such a horrible manner. If you feel that consolidating your debts in a home equity loan, consider what happened to me first. It may lead to worse consequences than you ever could imagine.

[Hey Fools, why not pen a Fribble, yourself? We welcome submissions from readers. Just click here and read the "What's a Fribble?" item, pen a short masterpiece, and send it off to TMF [email protected].]