“Why not take a little cash out?”

From the Minneapolis-St. Paul Star Tribune:

Many Americans living precariously on debt

When mortgage rates were at historic lows a few years ago, Victoria Bolton and her husband refinanced their home in St. Paul, Minn., taking out cash to pay off $70,000 in credit card bills.

Her husband’s woodworking business never brought in as much as expected, but they spent as though his next big job were around the corner. They relied on her nurse’s salary, and when that ran out, they paid for groceries, their kids’ college tuition, “everything you can think of” using credit cards, which Bolton, 55, said she used to consider “second income.”

Bolton’s habits help illustrate Americans’ addiction to debt. Soaring tuition and health care costs, two years of interest rate increases and readily available credit all have left a growing number of Americans relying on debt to finance their standard of living.

Experts estimate almost half of Americans live paycheck to paycheck.
…
Between 2002 and 2005, Americans borrowed $1.4 trillion in the form of home equity loans and lines of credit, according to SMR Research in New Jersey. During the same period, according to Freddie Mac, they took out another $645 billion using cash-out refinances, when borrowers take out a bigger mortgage than the one they just paid off and walk away with cash to spend.

“While they were at the table, they figured, ‘Why not take a little cash out?'” said Amy Crews Cutts, Freddie Mac’s deputy economist.

“Many people we see have done the home equity loan, not once, not twice, but three times in the last few years to roll (credit card) debt,” Humburg said.