Suze Orman is in a tizzy (see video below). She is ranting about some bad financial advice she heard on television, in which some “debt experts” recommended using a home equity loan to pay off credit cards. She and I agree: this is a BAD idea. Credit card debt is unsecured debt. Once you pay them off with a home equity line of credit, you’ve given your lender a security in your home. That means the lender can foreclose on your home if you default. Think about it: you could lose your home for charges you made at P.F. Chang’s.
One place that Suze and I disagree, however, is where she claims that credit card issuers don’t sue. I’m not sure where she got that information, but that is plain wrong. Talk to my clients. I’ve been in enough courthouses and seen lawyers going after people for credit card debt to know that Suze is off her rocker on this one. Once they sue you and win (and they will win), your paycheck can be garnished. Suze doesn’t want you to worry about that, though. Apparently, she’s never had 25% of her paycheck taken away.
No, I don’t believe that you should use a home equity loan to pay off your credit cards, but I also don’t want you to get the impression that credit card companies won’t come after you in court to get their money. They will. There are only two ways to stop them: pay them what they want or file bankruptcy.
If you have questions about whether bankruptcy is a better option that debt consolidation with a home equity loan, we hope you’ll come in for a free, no-obligation consultation with an experienced Colorado bankruptcy lawyer. You can call 303.331.3403 to schedule an appointment or use our online scheduling system.