Anyone with too much debt knows how hard it is to get rid of it, especially if you only make the minimum payment each month. The minimum payments are so small that any payment is just about offset by interest. You gain little by making the minimum, but if you have a number of debts, that may be all that you can afford. One possible solution is to consolidate your debt by replacing several different loans with one large one. That can be hard to do if you have already borrowed all you can. One great solution may be right under your nose - your home. A home equity loan is a great tool for debt consolidation purposes; it lets you borrow enough to pay off the other loans and has some additional benefits, as well.

A home equity loan is one where you borrow money against the portion of your house for which you have already paid. If you have a $200,000 home and you still owe $125,000 on it, you have $75,000 in equity. Most lenders are willing to let you borrow up to 80% of the equity, so in this scenario, you might have up to $60,000 available to you in the form of a home equity loan, or second mortgage.

Unlike credit card or payday loans, home equity loans have relatively low interest rates. The rates are comparable to those of a first mortgage; far cheaper than borrowing elsewhere. A great advantage of a home equity loan versus other types of lending is that the interest you pay on a home equity loan is deductible from your Federal income tax. This is a nice bonus, as interest on other consumer loans has not been available for more than twenty years. By allowing this interest to be tax deductible, you are effectively getting a discount even on the interest. 

Before you run out and take out another mortgage on your house to pay off your credit card debt, you need to realize that there are some serious consequences to doing so. The most significant of them is that you are now putting your house at potential risk. Credit card debt is unsecured debt; you have put up no collateral against the loan. If you buy a car, the car is the collateral and failure to pay for it will result in the car being repossessed. Not so with credit card debt, but if you take out a home equity loan, you are now offering your house as collateral for the loan. This means that if you fail to pay the bills, you may lose your home.

It’s also worth noting that if you consolidate your debt in this way, your credit card balances will go to zero, but you still owe the debt. It’s just in the form of a different loan. That means that you must not resort to your old spending habits, or you can quickly find yourself with twice as much debt as you had before. If you think you may have some problems with compulsive spending, you might wish to consider meeting with a professional credit counselor.