Using home equity to pay off bills and high interest credit card debt can look good on paper; that's why so many folks are doing it. At first glance consolidation loans look like a good option, with lower monthly payments, tax-deductible interest and the ability to replace credit card debt. But before you go down the loan path, take a closer look at the details and risks.

Lower monthly payments
    If you're a typical American consumer, you have too much high-interest debt, and it's costing a bundle to keep up with it. You pay late fees, penalties, and high interest rates. When a lender offers a chance to lower those monthly payments with a low-interest, home equity loan or a cash-out refinancing, it can seem like a great option. Don't kid yourself; no one's passing out free lunches. When you tap home equity to pay off bills, you can lower those high monthly credit card payments, but you don't get rid off the debt - you merely shift it.
    The lower monthly payment makes the debt look harmless. But look closer. Even though the interest rate is less and the monthly payments are low, you usually end up paying more over the long run because the payments are stretched out over a longer period.
    More important, when people with credit card debt use home equity to pay off their bills, they usually swear to God they'll never carry a credit card balance again; but they forget to change their spending habits, and they forget to save for emergencies and big-ticket items. When the car needs a new transmission, or they need a vacation, the plastic gets resurrected and the debt cycle resumes.

Tax-deductible interest
    Tax-deductible interest is the war cry lenders use to prod unwary homeowners into using their precious home equity to fund major purchases and pay off debt. Tax deductions are great, until you run the numbers. Let's pretend you have $40,000 in 18 percent credit card debt; your current monthly payment is $1,000. Continue the $1,000 payments, and the debt is history in 62 months. Total payments will be $62,000 ($1,000 x 62) and total interest will be $22,000 ($62,000 minus $40,000).
    If you were to use a 7.23 percent home equity loan to stretch the payments out over 180 months and payments go down to $365. Total payments will be $65,700 ($365 x 180) and total interest, $25,700 ($65,700 minus $40,000); you'll pay $3,700 MORE INTEREST with the home equity loan. If you're lucky, the tax deduction will compensate for the extra $3,700, but don't count on it. The lenders are the only ones who can bank on making big bucks on home equity loans; that's why they spend so much money marketing home equity loans.
No more credit card debt?
    Tapping home equity makes it easy to get rid of credit card debt, but that state of bliss is usually only temporary. It ignores the basic issue of why people rack up so much credit card debt in the first place. Most folks who use additional debt to get rid of credit card debt don't change their negative spending habits and end up deeper and deeper in the hole. Some even lose their house.

Home equity loans can be expensive
    Home equity is something to cherish and preserve, not deplete. Here's what no one tells you when you sign off on that home equity loan: Home equity is a time-proven way to accumulate wealth and provide a sense of security; when you tap it to pay off bills, you become poorer. Use home equity as a money tree and you could end up paying private mortgage insurance (PMI) forever. Credit card companies can't foreclose on your home if you run into financial difficulties. But home equity loans and cash-out refinancing are debts that are secured by your home. If you can't make the payments, you risk living in a cardboard box.
    Debt consolidation loans are expensive and risky and that not even counting all of those loan origination fees and prepayment penalties.

Conclusion
    For most folks, the road to getting out of debt and achieving financial independence is paved with discipline and budgeting, not more debt. Credit counseling can play an important role in taking that path. Taking on other debt won't solve the problem -- instead it can prolong the problem and has substantial risk. Such debt can often pave the way to bankruptcy court.

    Here are some tips to help you get on the high road -- to financial freedom:

•  Spend less than you earn, and save the difference.
•  Resolve to be debt free, and lay out a strategy to make it happen.
•  A nonprofit credit counseling agency can help.
•  Invest in yourself -- the more money you make now, the quicker you'll achieve financial independence.
•  Keep your hands off the equity in your home!