On Mon, 31 Jan 2005, Jordan Hayes wrote:
>> "If I had any equity left in my house, I probably would, too," said
>> Shamia Lewis, 26, who works at Innovative Mortgage Solutions in Center
>> City. She and her husband paid for their $8,686 Super Bowl package the
>> old-fashioned way: by dipping into their bank account.
>
> Stupid is as stupid does: if you have a home equity line of credit AND a
> savings account with a non-trivial amount of money it in, you're really an
> idiot.
True enough, but it seems like such person would also be a member of a very numerous tribe. According to a recent Frontline episode ("The Secret History of the Credit Card," which is being rebroadcast on Sunday in the New York area at least), the majority of people who have credit cards do exactly this -- they have substantial money in a savings account along with a revolving credit card balance. (This is even stupider than with a HELC, since not only is the interest differential higher in the first place, but it can at any time be doubled on top of that for seemingly tiny infringements *after* you've run up a large debt, which most people are shocked to find out). But if you ask people in a focus group why they don't pay off their loans, they'll tell you it makes them feel prudent to have money in the bank for emergencies. For some reason, having 2 grand in the bank and 2 grand on their card makes them feel prudent, but having zero on each makes them feel vulnerable. The Frontline report gave the impression that this kind of fuzzy thinking about credit is very widespread.
Michael