When purchasing that new fall sweater, it might seem easy to pull out the plastic, but relying on credit could be more dangerous than most people realize.

Thursday, October 14, 1999

When purchasing that new fall sweater, it might seem easy to pull out the plastic, but relying on credit could be more dangerous than most people realize.

In the past seven years, Debbie Thomas, a Firstar Bank branch manager with 20 years of banking experience, has seen a dramatic increase in home equity loans.

And although the No. 1 reason for getting a home equity loan is to make home improvements, running a close second is debt consolidation, Ms. Thomas said.

"Revolving credit debt can be the biggest problem a consumer can have," Ms. Thomas said. "There are probably more home equity loans for debt consolidation than ever before. People will use the loan to pay off all their credit cards, tear the cards up and throw them away to get them back in a position where that debt will be paid off. It’s the second biggest reason for a home equity loan."

This need for debt consolidation is a trend in today’s society in Ms. Thomas’ opinion.

"I think it’s a matter of not knowing how to separate wants and needs," she said. "When we stop and think about it, 99 percent of what has happened when a young couple comes in for help with debt consolidation is that they have bought a new house, car, new furniture It has to do with image. They want it all, they want it now and they get caught up in easy credit."

Most of the 20- to 30-year-olds who apply for home equity loans are in need of debt consolidation. This credit reliance is a byproduct of the baby boomer generation, Ms. Thomas said.

The baby boomers wanted to give their children everything, like most other generations. But unlike other generations, the baby boomers could give their children everything, she added.

This has allowed for a generation who wants everything their parents had at age 40 or 50 now, Ms. Thomas said.

A certified financial planner with Stephens and Son Insurance Agency, Jason Stephens agreed.

"It happens so often," Stephens said. "And it makes it so difficult for a young family. They want to live like their parents lived. You go out on your own, and you want everything mom and dad had without working for it, and credit is so easy."

Debt consolidation through home equity loans is sometimes the only solution once a couple has acquired $10,000 to $30,000 in credit card debt, Ms. Thomas said.

"Credit debt can haunt you forever," she said. "It snowballs, and there’s no other way to get rid of it than to consolidate the bills and put it on a fixed rate."

Consolidation gives the debtor a way out, Ms. Thomas added.

"A home equity loan has a fixed rate with a fixed term, which will eventually pay out," she said. "The loan also has a tax benefit, where other loans don’t. No revolving credit allows for any tax deductions."

But debt consolidation cannot work unless the person is willing to reform his or her spending habits, Stephens said.

"Just because you have consolidated your loans doesn’t mean you’ve fixed the problem," he said. "You need to budget everything so that you don’t repeat the same mistake."

Credit cards are useful if used correctly, Ms. Thomas said.

"Most 20- to 30-year-olds just need to learn how to pace themselves," she said. "Everybody needs at least one good card, but it’s just a matter of pacing yourself. Credit cards are available when you don’t have the cash, you just have to make sure you will have it later. There’s nothing wrong with easy money, but you eventually have to pay it back."