By Madhavi Acharya-Tom Yew
Moneyville.ca

Canadians have gone from a standing start 20 years to owing $219 billion on lines of credit today. Credit line use is growing faster than mortgage debt and now accounts for 12 per cent of all consumer debt owed by Canadians.

The stories revealed that home equity lines of credit have become popular for many reasons. They are typically secured by your home, and you can borrow up to 80 per cent of your home equity against it. Because of that security the banks offer a low interest rate – much lower than credit cards.

Most seductive is that the minimum monthly payments often cover just the interest, which masks the true cost of repaying the amount borrowed.

Banks say that it’s up to consumers to know their borrowing and spending limits and be aware of the warning signs that they’re in over their heads. They say that they are prudent and responsible lenders and that delinquency rates on lines of credit are low.

Readers like Roberto Cárdenas know what it’s like to slide into the temptation of easy credit – and how difficult it is to pull yourself out of that hole.

Cárdenas, who came here from Mexico in 2004, likes to say that Canada accepted him with open arms – and open lines of credit. “How else does an immigrant go from a secured $500 credit card to more than $57,000 in consumer debt, plus a mortgage, in a couple of years?” Cárdenas said.

At first the line of credit was very useful. He and his wife used it to get settled in their first apartment. But then, when he finished school and got a better job, the bank increased their credit. The Cárdenases obliged by spending it – electronics, a television set, clothing trips, furniture, and sometimes groceries.

Last year, they turned to their family for help to pay off the remaining debt, about $44,000. Cárdenas, an IT network administrator, hopes to have paid back his relatives within about five years.

“It was a lesson learned in a very, very hard way. My advice to others is to just say no when the bank offers more credit. If you’re not going to use a credit line, why take it? If you need to ask for credit, don’t ask for more than what you earn in a month.”

We asked readers for their experiences and received hundreds of emails and comments. Some praised LOCs, and pointed out that, if wisely used, they are a powerful source of cheap credit. Others lamented that they had abused them and in some cases almost ruined their lives.

Here’s what you said:

The pros:

•  They are useful for consolidating high-interest debt.

• They are are an effective way to deal with a large, unexpected expense.

•  They are an easy way to make investments in such things as stocks and mutual funds.

•  They are flexible and convenient, if used properly.

The cons:

• It’s easy to give into temptation and start spending.

Beware of paying interest only. It makes the debt seems smaller, while allowing it to mount up.

A sudden death or illness leaving the family breadwinner unable to work, leave you unable to pay the money back.

•  You’re vulnerable to interest rate changes.

•  If you sell your home and the credit line is secured by the house, a lender can demand immediate repayment.

•  If the credit line gets away from you it could take years to pay off.

Audrey Barrett says that she and her husband – prompted by their banker – took out a $70,000 home equity line of credit to consolidate their bills in 2005. Her husband died in 2008. Barrett was certain they had insurance from the bank to cover the debt. The bank says the insurance was not approved because of an issue with her husband’s health.

The 68-year-old Brampton retiree is now battling the bank and various regulators, while struggling to pay back what feels like an insurmountable debt.

“If they had said to me you haven’t been approved for life insurance I would have said then you’re not using this money to pay the bills,” Barrett said.

“I never in my wildest dream thought this would happen.”

Louise, who asked that her last name not be used, and her husband had a home equity line of credit worth $243,000. They had big plans for it – renovating the basement to create an in-law suite, and maybe taking a trip.

Instead, they dipped into it to keep afloat when her husband lost his job.

But then bad got worse. Her husband, who suffers from depression and bi-polar disorder, began drawing the funds down quickly and has been unable to pay it back.

Louise and her husband recently separated after 34 years of marriage.

When she called the bank to try to stop him from accessing the line of credit, she was told that would be very difficult, if not impossible, because the account is in both their names.

“For us the line of credit turned into a financial nightmare,” Louise said. “I wish the bank had not given us so much. It was just too much.”

Some readers complained they have been hit by inactivity fees on their lines of credit if they’re not used each year. Others said they’ve been told there are charges related to closing or cancelling the account.

Some readers wrote to praise the line of credit.

“Far better to use a line of credit when older than giving away your assets by buying a reverse mortgage,” wrote Barbara Allentoff of Thornhill.

“I have used my home equity line of credit only for (tax deductible) investment purposes,” wrote Andrew Chong of Toronto.

Eight years ago, a new account manager at the bank convinced Jenny Misener to take out a line of credit. She was a renter, and didn’t think she would ever use it. A few months later, she found herself putting in an offer on a house, and that line of credit allowed her to write a cheque towards the offer.

“I certainly didn’t have that kind of cash in my account, but thanks to an energetic and far-sighted account manager, today I have a house. I didn’t use that line of credit again.”

Others offered cautions.

Ian Murray said he didn’t negotiate a fixed rate on his line of credit, and the interest rate went from 3.95 per cent to 4.7 per cent in less than six months.

Royden Hickingbottom was pleased to use his home equity line of credit to renovate the basement. The wake-up call came when he sold the property and the lenders said, “No new mortgage money until this is paid off in full.”

They didn’t have enough equity to pay off all the debt and still be able to purchase the new house they had already signed for. “We did move into our new home but had to borrow heavily from family (thank God for them) and start all over,” Hickingbottom wrote.

Jen Hagerty and her husband just refinanced their mortgage to bail themselves out of $20,000 on a line of credit and an another $10,000 on a credit card. They have a mortgage with a 30-year amortization but plan to pay it off in 24 years.

Now, Hagerty says that she uses “an envelope system” to learn how to save money.

“My recommendation is to stay away from likes of credit,” Peter Campbell wrote. “They offer nothing but a chance to go into debt.”