What are the most destructive personal financial decisions a person can make? Use a home equity loan to pay off credit-card debt Lenders love to tout home equity loans and lines of credit as a way to pay off your plastic. You'll even see some personal finance journalists parroting the company line that such loans make sense, because home equity rates are typically lower than the interest rates you'd pay on your cards -- and the interest is usually tax deductible. The only way this maneuver really helps you, however, is if you stop using your credit cards to run up debt. Otherwise, you're just digging yourself a deeper hole. Oh, sure, you can borrow more against your home to pay off the new debt -- thus whittling away the amount of equity that's available to you in an emergency, and ensuring that you continue to pay hundreds or thousands of dollars a year in interest to your lender. The credit-card balances you should be paying off every month instead get stretched out for years, ultimately costing you more in interest -- even with the tax savings. If you've already borrowed against your home equity, pay off the debt as quickly as you can. If you haven't and think you need to, cut up your credit cards first. Don't use your home equity to pay for luxuries or for anything else that won't last as long as the loan. Borrow from your 401(k) People who borrow from their workplace retirement funds, meanwhile, love to think it's a smart move, since when they repay the loan they're essentially paying interest to themselves rather than to a credit-card company or other lender. This is true, but 401(k) borrowers also could be putting their retirements at risk. If they lose their jobs or get fired, the loan must be repaid, typically within weeks. If that's not possible -- and often it's not, since people who lose their jobs don't tend to have a lot of cash sitting around -- the outstanding loan balance is taxed and penalized as a premature distribution. So in addition to the $6,800 you borrowed to spend on whatever, you'll be coughing up thousands more for taxes and penalties. It gets worse, since you can't put that money back. Whatever the $6,800 might have earned in future years is gone forever. Assuming an 8% return that could cost you more than $75,000 in future retirement funds. Like home equity, retirement funds are best left alone to grow -- and to be there for you in case of real emergency. Stretch to buy a house Beware, homebuyers. Everyone around you is conspiring against your financial best interests. Your real estate agent wants you to buy the most expensive house you can: the higher the price tag, the bigger her commission. Your lender is in cahoots, as well. Not only will a larger loan rack up more fees and interest, but also the lender knows you'll move heaven and earth to pay your mortgage even when you're falling behind on other bills. Your friends and family also may get into the act, telling you it's okay to stretch to pay that mortgage, since your income will eventually rise and make the payments more comfortable. Maybe, maybe not. But anyone who's been house-poor knows the emotional, psychological and financial stress of stretching too far. Buying too much house could mean giving up other things you want: vacations, eating out, a college fund for your kids, a sufficient retirement kitty. Or it could mean ever more debt, as you borrow to try to maintain your lifestyle. Traditionally, lenders limited the amount you could borrow so that your housing costs --principal, interest, taxes and insurance, or PITI -- equaled 26% to 28% of your total pretax income. Lenders today, however, are often willing to go to 33% or even higher. Mortgage payments, of course, are just part of the costs of owning a house. Homeowners should plan on spending at least 1% of their homes' value each year on maintenance and repairs. Include other costs, such as bigger utility bills, homeowners' association dues and decorating, and the typical homeowner could spend an amount equal to the monthly mortgage payment on such upkeep. If you're set on buying your dream house, figure out how much more you'll be paying each month for your new home -- and start living now as if you were already shelling out that amount. If you can pull this off comfortably for six months or more, then you can proceed with some confidence. In the meantime, Fernandez said, you can save the difference between what you're spending now and what you'll be spending in the future -- thus bolstering your emergency fund and giving yourself an even larger comfort zone.