Have you seen the commercial where the home shopper freezes her credit cards in a chunk of ice? When she sees a “call now to buy” number on TV she frantically starts chipping away at the ice cube. But, by the time the commercial ends, she stops chopping and changes her mind. If borrowers had done the same with their HELOC debit cards, millions wouldn’t be drowning in negative equity now.

HELOC debit cards are extremely convenient. To use your HELOC line, just swipe the card like a traditional credit card. No need to worry about writing a check or visiting a bank.

Unfortunately, their ease of use makes it tempting to make unnecessary purchases. Daily purchases here and there can add up. Use your card for an ipod, a new pair of shoes, and other “just for fun” purchases and it’s amazing how fast you can rack up $20,000 or more. Suddenly, you’ve used a good share of your home’s equity without getting much in return. (Paying for home improvements or college tuition, on the other hand, will give you the chance to earn the money back).

If you have a HELOC debit card, realize that it holds more risk than a traditional credit card:

If you can’t make payments on your traditional credit cards, you may be charged late fees. The credit card companies will eventually cancel your lines. They’ll call you repetitively and may be rude. But, you won’t lose your home or other assets. In seven years the debt will be wiped from your credit score.

If you cannot pay back your HELOC, you’re in much bigger trouble. Your HELOC lender will eventually foreclose on your property. If the debt is not satisfied by your home’s foreclosure, the lender can seek the money from you personally. HELOCs are almost always recourse loans which mean you are liable to pay back the money. A judge may even decide to garnish your wages.

So, use caution when swiping that HELOC debit card. Shred it if you need to. Or go ahead and make an ice cube out of it…just be careful not to serve it in your next punch bowl.

See Also:

How a HELOC Works

Answers to Common HELOC Questions

Tags | Heloc, heloc debit card, HELOC risks