A lot of people have taken out home equity loans to pay off credit card debt. This can be a smart move but it can also really backfire if they aren't careful. The smart part is refinancing high interest non-deductable debt to a lower rate. However, credit card debt is unsecured by collateral. That makes it relatively easy to default on the debt, which explains the higher interest rates. A home equity loan is secured by collateral - the home. In the event of a default, you can lose your house. This is already happening. Foreclosures are up in many parts of the country as people have overextended themselves with debt only to get hit by a crunch like losing a job.

As you mentioned, many people who've gotten used to spending more than they earn are likely to keep up the practice after they refinance the debt. They never learned the axiom, "If you find yourself in a hole, the first thing to do is to stop digging."

Spending more than you earn is a very common problem in America, ranging from individuals all the way through the federal government. It's also a recipe for disaster. In an emergency, you can justify doing it for a short period. For example, a nation can justify deficit spending in time of war or natural disaster. Likewise, families can justify deficit spending in the event of a serious illness or other emergency. However, the definition of "emergency" has been defined down by too many people to mean "I want it."

For my wife and myself, we decided to pay off all our debt as a means to financial security in uncertain times. I'm a bloodsucking contractor in the high tech field, so my job can disappear fairly quickly. Not that I'm overly concerned, but in the contracting biz, you live and die by the contract. My wife is a nurse, so there's no problem with her finding a job should she lose her current one. She's the boss at her current job so it isn't likely she'll be fired, but the stress of being a hands-on nurse manager for a growing practice has been taking a toll on her health. Paying off the house will give her the choice of cutting back to part time or taking early retirement. In the very unlikely event that we both lost our jobs at the same time, we could live for several years on our savings even without unemployment insurance. That's what I call financial freedom, and isn't that what retirement really is - living off your savings?