This American Life…

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In an article in today’s NY Times a Michigan couple highlight their difficulties managing debt; a burden that is all too common with Americans these days. Their story sounds all-to-familiar to millions of people out there in our country. It’s worth a read to understand how people, who live a "normal" life end up buried. Partly through circumstance, partly through mismanagement and irresponsibility, they end up in a hole that will take a long, long time from which to dig out.

It is easy to see how quickly it all adds up. While many people look to tear apart the brokers as agents who promoted the refinance craze; it is easy to see why so many people took the decision in their own hands to refinance. Paying 32% on a Sears card and other high-interest debts provides little other option to get out from under than to refinance their homes.

The people in trouble are those that used their "get out of jail" card via a refinance and then racked up the credit cards again – expecting that their home could save them one more time. Unfortunately for them, homes don’t always go up and up. Now they are stuck, badly. Fully financed home, maxed credit cards and no easy answers. Welcome to America.

If you haven’t used your equity to lower your debt burden you should talk with someone about whether it makes sense to or not. While it is irresponsible to use your home as an ATM, it is also irresponsible to not minimize your monthly interest expenses. There are ways to put your money to work repaying debt; and paying the interest is not one of them. Talk to a trusted source and see if it makes sense. If you want you can ask me; I’ll give you an honest, unvarnished answer.

But, please, don’t refinance just to dig yourself in to the same hole again in 2 years.