Media outlets are flooded with companies willing to write a debt consolidation loan using the equity in your home to pay off those high interest rate credit cards, but is this a good thing?

It’s true a home equity loan can pay off debts that carry high interest rates (provided you’ve got enough equity.) In many cases the interest paid on a home equity loan can even be deducted on your taxes. Sounds like a "no brainer," right? Not so fast!

Consider that you are not only using the equity in your home to pay off unsecured debt, you are also converting that unsecured debt into SECURED debt. Now, if something happens where you can’t afford your monthly payments, you could risk losing your home.

Here’s the typical scenario: Unless people are completely committed to living debt-free and changing spending habits, people pay off credit card balances with their home equity loan but continue with uncontrolled spending. If this happens, the typical homeowner will find within a couple of years that they not only have a new home equity payment, but new credit card balances that snuck right back to the same levels. If you thought it was difficult making those high-interest credit card payments before, try figuring out where the money is going to come from to pay for those and your new home equity loan.

Bottom Line: Determine your commitment level to change your spending habits before you apply for that home equity loan. If you’re not completely committed, find another solution to your credit problems!