Money Makeover: Exclusive

Money Makeover: Exclusive
Dr. Phil speaks with couples who are resolving to get a handle on their finances.
Dr. Phil and Elizabeth Warren continue to answer questions after the show.

One audience member wants to know: "I just wondered why in the recommendations, student loans were at the top of the payback list when they usually seem to be the lowest?"

Elizabeth answers: "One, to pay them off in full, but it was also to keep up with those payments because student loans carry a huge legal obligation. That is, it can't be discharged in bankruptcy. They can come in and take your money, they can come in and seize your assets in ways that other creditors can't. People think student loans are benign. They're not. They're a very dangerous form of debt so stay up with the payments. The fact that they can't repossess your diploma doesn't mean they can't hurt you if you don't make those payments."
A woman stands up with a comment: "I was in a similar situation, not nearly as bad as these two couples. But when I needed a new car, I went to a car rental agency and asked what they had. And the car rental agency gave me an excellent car that had been well maintained for much, much cheaper than I could've found anywhere else," she says.

Dr. Phil agrees. "I think buying new cars is a very expensive proposition," he says.

Another woman has a question: "In regards to the home equity loan, the rates on the home equity loans are usually lower than the credit card rates. What's wrong with getting a home equity loan, paying off your credit card and not have that high rate?" she asks.

Elizabeth answers: "They are lower and there's a reason that they're lower. They're lower because they'll take your house away if something bad goes wrong, if you later lose your job or if something else happens. If you really get into financial trouble, there are options for dealing with credit card debt. There are no options for dealing with a home equity loan other than pay it or lose the house."Elizabeth continues: "The other thing that happens is that when people take out home equity loans in order to pay off credit card debt, what the statistics show, is that more often than not, within two years, they owe as much in credit card debt as they owed before they took out the home equity loan. By the time they finished going all the way around the merry go round, they've got a bigger loan against the house and credit card debt. If you've got a credit card debt problem, hit it head on, deal with it head on and get rid of it. That stuff is robbing you blind."

"The whole point about a home equity loan is that they will give you a low rate because there's so much collateral on the block," Dr. Phil explains. "They don't care if you pay or if you don't. Because if you don't, they will take your house and sell it. And so the risk to you is so high. You put the roof over your children's head on the trading block when you do these improvement loans and home equity loans."