Pity the poor credit-card-issuing companies, such as MBNA
Well, OK, it's hard to feel sorry for any firm growing at 19%. Still, there are some interesting developments afoot in the usually lucrative arena of credit cards. For one thing, the refinancing boom of the past few years has been taking a toll on card issuers. If you owe, for example, $10,000 on your credit cards, you might, while refinancing your mortgage, borrow an extra $10,000 in order to pay off your card debt. This can make a mountain of sense, since mortgage interest rates tend to be significantly lower than credit card rates.
Now there's more competition, though, as the refinancing boom winds down: home equity loans. That's right: If refinancing doesn't make sense for you right now, you can still pay off that credit card debt -- with a home equity loan. It also features generally lower interest rates. The downside? Well, it's not an instant solution to your debt problems. You'll need to pay off the loan and will have to keep your credit card use in check, lest you accumulate even more debt.
According to the BusinessWeek article, "Morgan Stanley
Home equity loans are also being widely used to generate money for investing -- more so than they're being used for home improvements, according to a Federal Reserve Board study. This can be effective, but only if your investments perform as you hope. If they go south, you'll still end up with debts to pay. Even if they gain a few percentage points, the interest rate on your loan might exceed that, and you'll still end up with a net loss.
Learn much more about the credit card industry (and its secrets) and how to manage debt effectively in our Credit Center. And read about all things credit-related on our Consumer Credit / Credit Cards discussion board.
You can learn more about buying, selling and maintaining a home in our Home Center. Also, visit our Buying or Selling a Home and Building/Maintaining a Home discussion boards, to get some great insights and tips from fellow Fools.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.