Sam's Dumbest Financial Move

Fascinating article in The New York Times (as part of the interesting Debt Trap series) on how banks used advertising to change the way Americans talked and thought about second mortgages (now rebranded as home equity loans or home equity lines of credit). And how Americans responded:

Since the early 1980s, the value of home equity loans outstanding has
ballooned to more than $1 trillion from $1 billion, and nearly a quarter of
Americans with first mortgages have them.

One complaint about the article was that it failed to mention the Tax Reform Act of 1986 and that pursuant to that law interest on consumer loans, such as credit cards and car loans, was no longer deductible. Although the article did mention that the banks' advertising campaign took advantage of the fact that these loan products were tax deductible.

Still, Elizabeth Warren, a professor at Harvard Law School who has studied
consumer debt and bankruptcy, said that financial companies used advertising to
foster the idea that it is good, even smart, to borrow money.

Back in 2000, I had some smart more experienced friends tell me I ought to take out a HELOC on my first house (bought in 1999) to consolidate some higher interest credit card debt that I ran up in professional school. And I fell for the idea that it was "smart" to trade higher interest credit card debt for lower, tax deductible, debt. So I got myself a HELOC of $21,000 and I made minimum payments on the loan until I sold the house in 2004 (luckily for double what I bought it for).

I made a lot of smart financial choices during this time period. I bought my first house in 1999, I created my first spending plan (budget) in 2001 and I paid off my car and student loans. But, taking out the HELOC was dumb, dumb, dumb. I traded unsecured credit card debt for secured debt (risking my home) and while I never ran up my credit cards again I continued to use the cards and my spending, while better than most of my peers, was still above what it should have been. Bottom line, I didn't change my spending habits when I consolidated my credit card debt and as a result I ended up with more debt.