People who are hounded by credit-card or medical-bill collectors might think that taking out a home-equity loan to pay those debts is an easy way to stop the annoying phone calls. Be warned: “This is very dangerous to do unless you have a good spending plan in place, and determination to keep it,” says Ginny Schroeder, lead counselor at the Financial Information and Service Center. “Otherwise, you may end up with a home-equity loan and credit-card debt, and could find yourself in a place where you can’t pay it all.”
Think this sounds bad? That’s not the worst of it. “You are taking unsecured debt and making it secured, which means you could lose your house if you can’t pay it,” Schroeder says.
Luis Caraballo, a counselor at InCharge Debt Solutions, goes so far as to call this “the worst advice I have heard.” He says, “It is never a good idea to convert unsecured debt to secured and risk losing a home.”