You've spent the past few years being dumb with money. You realize that now. Your credit cards are maxed out, you're living paycheck-to-paycheck, and you cannot see a way out. You plan to sell some stuff and to take a part-time job, but you're looking for other ways to ease the burden. If you're a homeowner, one option to consider is tapping your home equity to consolidate your consumer debts.

Definitions

Just what is home equity anyhow? Home equity is the difference between what your property is worth and what you owe on it. If your home is currently worth $200,000, for example, and your mortgage balance is $150,000, then you have $50,000 of equity.

Under normal circumstances, this equity remains untapped, increasing slowly with time. There are, however, a couple of ways to use home equity for other purposes:

When people ask me what I do and I tell them I run a credit card comparison site, they generally look away, as if I've just said I'm a pimp. Or a crack dealer. Or a crack-dealing pimp. When I tell them credit cards aren't all bad, they're skeptical. You probably are, too. I might not be able to change your mind, but if one less person in the world thinks I'd give cigarettes to an asthmatic, this post will have been worth it.

Used properly, credit cards can offer you some real benefits. (Yes, used poorly they can ruin your life, but that's been established elsewhere. I'm here to give you a few positives.)

Before his trip abroad, J.D. mentioned getting his first credit card in a long time. He talked about the dangers of doing so, but he also exhibited what I'd consider the mindset of a responsible credit card user. This mindset can be summed up in a single sentence, which you should make your credit card mantra:

Your credit score is like a pet monster under the bed. Feed it and care for it, and it will do your bidding. But if you neglect it, it will turn against you. But beware! Taking good care of it can bring you dangerously close to its sharp teeth.

Your credit score determines the types of credit you can obtain, and how much you will be charged in interest. Last year I described the anatomy of a credit score, explaining that it's a single number derived from various pieces of information contained in your credit report.

CNNMoney has a presentation that describes six situations that can to turn your credit score from a friendly monster into a raging beast. If you want to keep the beast happy, avoid:

I don't like credit cards. Many smart people — including my wife — use them wisely and never have problems. I'm not one of those people. Most of my money woes stem from credit card debt acquired when I was first out of college. Eventually I wised up — I have not carried a personal credit card in more than five years.

NCN at No Credit Needed has posted a detailed list of the reasons he does not use credit cards. He writes:

I have not used a credit card in over two years. So far, I have yet to find myself in a situation where I had to use my credit card. (I still have one, active, credit card account. I keep my card tucked away in my wallet. I'm not sure it actually works anymore. I do not plan to find out.) I do not advocate closing credit card accounts. I have an account that is open and in good standing. I just don't use it. What have I learned about NOT using my credit card?

Continue reading...

More about...Credit

I don't like credit cards. They're a dangerous trap, especially for the young. Many smart people disagree with me, though, and have learned to use credit cards to their advantage. This guide provides solid credit card information so that you can make smart choices.

I've structured this as a series of questions and answers. There's sure to be a lot missing. Please let me know what else should be included here, and I'll add it. Let's start with the big question:

Where can I find the best credit card deals?

Low-interest credit cards

• Ongoing low-APR cards
• 0% introductory offer cards
• 0% balance transfer cards

Reward credit cards

• Cash-back cards
• Cards with rewards
• Travel and airline cards
• Gas cards
• Secured credit cards
• Unsecured credit cards

What should I be wary of when getting a credit card?

If you think you might need a new credit card, be sure to read Nine Things to Consider When Choosing a Credit Card. This short checklist is an excellent way to make sure you don't forget something important that can come back to burn you later. Also be wary of stupid credit card tricks.

How did the United States become a nation of debtors? When did credit cards become popular? Did you know that many modern credit card policies are the creation of one man?

The Secret History of the Credit Card was a 2004 "Frontline" presentation from the Public Broadcasting System. The program examines the nation's use of credit and, more specifically, the methods used by credit card companies to obtain enormous profits. The Secret History of the Credit Card won the 2004-2005 Emmy Award for Outstanding Investigative Journalism.

PBS has made the entire program freely available online in RealMedia and Windows Media formats. The broadcast is divided into five segments of roughly twelve-minutes each for easier download.

An AskMetafilter user wonders: How many credit cards do typical people have?

For various reasons I have four credit cards. I always thought of this as too many, but haven't cancelled mine since the crappiest one is also the oldest, and has no fee, and I want to maintain the age of the card on my credit report. Most people I know have one or two cards. But reading online forums on credit, I see plenty of people with more than four. How many is normal? How many do you have?

According to How Many Credit Cards is Too Many? at MoneyCentral, "most Americans carry between five and ten credit cards". According to Steve Bucci at bankrate.com: