Carefully evaluate home equity loans

The current housing market coupled with the increase in mortgage interest rates may have put you in a money bind.

To avoid personal bankruptcy, look closely before you take out a home equity loan to pay off your personal debt. Granted it is tax deductible but it drains equity out of your main asset, your home and is a strong indication you are living beyond your means.

When house costs are high and the interest rates are low, personal bankruptcies decrease as this higher equity allows you to keep your credit card debt down. But the trend these days is the opposite with interest rates just taking another hike and the housing market on hold. Personal bankruptcy filings might increase as well due to the number of no equity loans that hold off paying on the principal until you sell.

Problem is the housing market is soft and the selling price may be significantly less than the mortgage. Foreclosures are running a third higher than last year. Not a great picture for those living on the credit edge.