Earlier this week I received a Newsletter from CitiFinancial. I am not even sure why I got it as I do not remember signing up for one or applying for any credit through them.  

The Newsletter was one page long and had five different advertisements explaining how their products would be able to help with someone's financial problems. Their products are signature loans, credit cards, mortgages, and home equity lines of credit (HELOC).  

We are bombarded daily with advertisements promising that more credit will help. This is not the case!  

If you already have debt, the last thing you need is more debt 

  • Signature Loans.  These are the same thing as a credit card without the physical plastic. The bank is lending you money based on your credit history and debt to income ratio among other things. Signature loans are unsecured, meaning the Bank's interest is not protected with an asset like a car or a home. The interest rates can be high and using them to pay your credit card debt does not help because you are simply transferring the debt from one bank to another.  
  • Credit Cards. I think we all know what these are. My Mom has told me that when she was growing up, her father was one of the few people in their neighborhood who had a credit card.  Now everybody has them. The market segments for credit cards continue to expand from senior citizens to college students, and the rich and the poor. The majority of us are driven by instant gratification. The idea of saving for something has largely disappeared and we can only blame ourselves for credit card debt. The bank may have given it to you, but they didn't force you to accept it or use it. Moving the debt from your American Express to your Visa is not a solution. Sometimes putting charges on a card is the only option if someone has no other choice and has to cover emergency expenses like getting a car fixed or a medical emergency. Be sure to separate what is an emergency and what is a want.  
  • Mortgages. Over the past few years mortgages have changed significantly and we are now seeing the end result,...problems. Foreclosure rates are up, people are losing their homes, and most of the banks that made these types of mortgages possible have had to change their forecasted earnings. The bottom line is that traditional mortgages are generally the best way to go for most families. To purchase a home you should have a down payment, a credit history that shows you have fulfilled your financial obligations, and the ability to make your mortgage payment each month.
  •  Home Equity Lines of Credit.  A few weeks ago I was having a conversation with one of my friends about this very topic. He explained to me that his mortgage would be paid off in the next few years but he would still have his HELOC to pay down. He explained that when they originally got their mortgage they had decided to get a 15 year fixed and didn't want to refinance during the recent boom. Instead, they opted for the HELOC as a safety blanket. It is all the same! It is debt attached to your biggest asset. Again, he explained that they tapped it quite often because it seemed like they had more money going out each month than they had coming. Instead of talking about doing a budget or getting more in touch with their money, their solution was to increase the limit on the HELOC. 

These are the equivalent of having a credit card attached to your home. Using your house as an ATM machine is putting your largest asset at risk.  

The cycle is easy to fall into:

  1. a HELOC is used to pay off credit cards
  2. the credit card accounts are left open
  3. the balances on the credit cards are run up again
  4. a HELOC is used to pay off the credit cards
  5. the credit card accounts are left open
  6. repeat 

You cannot get out of debt by simply transferring it from one debt vehicle to another. Changes have to be made to your spending habits and budgeting to fix the problem. Track your spending, live on a budget, and don't rack up debt.

Rob Taylor   

Rob Taylor is a contributing author for A Straight Talk on Debt. Rob tells it like it is when it comes to the latest debt industry news and shares his advice on personal finance.