Since the refinancing boom began in 2001, American homeowners have cashed out more than $330 billion in home equity to cover rising living expenses and credit card debt, putting at risk their most important asset – their home. Due to ever-increasing financial pressures, families often depend on high-cost credit as a way to bridge the gap between stagnant or decreasing incomes and rising costs just to live. This third brief in the Borrowing to Make Ends Meet series examines rising debt and debt burdens, as well as the consequences of leveraging equity through credit card debt.
Home equity, a measure of family financial health, has fallen to its lowest level in 30 years.
In 2002, the percentage of monthly income to the amount needed to manage monthly debt payments reached 18.56% – a record.
Increasing appraisal fraud has inflated home prices over the last several years.
Good Debt or Bad Debt
In light of current refinancing trends, the difference between good debt and bad debt is becoming blurred.
Statements & Quotations
Today, there are no legal bounds to the amount of fees and interest credit card companies can charge borrowers. In addition, credit card companies, unlike other lenders, are allowed to change the terms on cards at anytime, for any reason.
Combined with a decline in home values and rising costs, individuals and familiescould be faced with a perfect storm for financial disaster.
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