The 3 Worst Money Moves You Can Make!

Pitfalls and how to Avoid them

Some of today’s most common personal-finance decisions also happen to be some of the most destructive. Here are the primary pitfalls -- and how to avoid them.

Sound financial advice doesn’t change much from year to year. Bad money management ideas, however, seem to mutate and flourish with each passing season.

Borrowing against our home equity and retirement funds, for example, was once tough to do -- and generally understood as a bad idea. Today, financial services companies encourage us to do both. Lenders also urge us to stretch farther and farther to buy our homes, often to our peril.

Ultimately, it’s up to you to resist bad advice and protect your own financial futures. Here’s what you need to know about three of the most popular pieces of bad advice today:

Use a home equity loan to pay off credit-card debt
Lenders love to tout home equity loans and lines of credit as a way to pay off your plastic. You’ll even see some personal finance journalists parroting the company line that such loans make sense, because home equity rates are typically lower than the interest rates you’d pay on your cards -- and the interest is usually tax deductible.

Americans have been taking this advice with a vengeance. We borrowed a total of $701.5 billion from our home equity as of the end of last year, according to the Federal Reserve, up from $416.2 billion in 1997. Low home equity rates, and stubbornly high credit-card rates, have convinced millions that this is the way to go.Your money, fast.
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The only way this maneuver really helps you, however, is if you stop using your credit cards to run up debt. Otherwise, you’re just digging yourself a deeper hole.

Unfortunately, the ability to live within their means is beyond many people. Nearly two-thirds of the people who borrowed against their home equity between 1996 and 1998 to pay off credit cards had run up more card debt within two years, according to a study by Atlanta research firm Brittain Associates.

Oh, sure, you can borrow more against your home to pay off the new debt -- thus whittling away the amount of equity that’s available to you in an emergency, and ensuring that you continue to pay hundreds or thousands of dollars a year in interest to your lender. The credit-card balances you should be paying off every month instead get stretched out for years, ultimately costing you more in interest -- even with the tax savings.

Financial planner Ross Levin of Minneapolis says home equity lending has its place -- as an emergency source of cash. He encourages clients to set up home equity lines of credit, which are revolving accounts that work much like credit cards with variable interest rates, in case they lose their jobs or need quick cash to meet some other dire need. Many lenders will set up home equity lines for you at no cost, and the annual fees are usually minimal.

But Levin, like other planners, is adamant about not tapping home equity to pay off credit cards or anything else that won’t last as long as the debt.

“The people who need to do a debt consolidation (using home equity loans) tend to need to do it again and again and again,â€