Debt, it is so easy to accumulate and so difficult to pay back.

One day your financial house is in order; the next, your credit cards are maxed and you have no idea where the money went.

For many people, a home equity loan provides hope – a way to consolidate high-interest debt, wipe the slate clean, and make smaller monthly payments calculated at a lower interest rate. Others chose to take out a loan to make purchases they simply do not have the cash for: a roof to replace the one that leaks; a ski vacation for the family; or college tuition.

A home equity loan is a loan against the equity in your home – a second mortgage. The interest rate is much lower than what most people pay on their credit cards and the debt is spread over a five to 15 year period, making the monthly payments much lower than what people generally pay on consumer loans or credit cards. In most cases, interest on the loan is tax deductible up to $100,000. Loans used for home repairs or home improvements are deductible up to $1 million.
(See below for more information.)

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Here are some things to think about when considering a home equity loan:

Refinancing your debt into a home equity loan doesn't increase or decrease your debt, it simply moves it. If you owe $25,000 in credit card debt you will still owe $25,000, however the debt will be calculated at a lower interest rate and paid over a longer timeframe.

Interest paid on a home equity loan can be deducted from your taxes, unlike interest paid on credit cards.

Once the loan is in place your credit card balances will go back to zero. For many people, the temptation to rack up debt can be overwhelming. Keep this in mind or you may risk losing your home.

Many people use the equity in their home to increase their equity even further. A home equity loan, repaid over five to 15 years, makes it possible for many Americans to make home repairs or renovations they might not otherwise have been able to finance. Kitchen and bathroom renovations pay back as much as 90% of their costs.

Although they are available, loans greater than 100% of the value of your home are not advisable. The interest on these loans is calculated at a rate much higher than standard consumer loans and is not fully tax deductible.