Bring Your Debts Home.

This space is dedicated to answering many of your questions regarding money and finances. As a teacher at heart, I welcome the opportunity to address your areas of interest and need, and the issues that are most important to you. Please send your questions to Julie Stay, Inc. P.O. Box 8995, Calabasas, CA 91372-8995, or julie@hisp.com.

Q: My wife and I have been considering using some of the equity we have in our home to consolidate our higher-interest credit card debt. What is the difference between a home equity loan and an equity line of credit and which one would be better for us? Thank you.

A: You are not alone. According to a recent survey by the Consumer Bankers Association, the No. 1 reason a homeowner takes on additional debt on a home is to replace a more expensive debt, and your credit cards definitely qualify under that category. From a simple number crunching perspective, it makes perfect sense to do it, since you will most likely be reducing the interest rate you will be paying on your debt accompanied by the possible additional benefit of being able to deduct the interest amount on your income tax return each year, since most mortgage loans qualify for the maximum $100,000 interest deduction.

A home equity loan (HEL) is considered a closed-end loan, similar to a fixed-rate mortgage on a home. In this type of loan, you will receive a lump sum of money provided to you all at once by the lender. Your interest rate will most likely be fixed and your monthly payments will be amortized over a predetermined period of time.

On the other hand, a home equity line of credit (HELOC) acts more like a credit card, where you are preapproved for a specified amount. In a HELOC, you can access the money available to you by writing a check, using a secured credit card issued by the lender, or a wire transfer. The interest rate charged on the amount you use from a home equity line of credit is variable, which means that it can fluctuate over time. You are required to pay the interest amount each month during a set period of time, although you have the choice of paying a larger amount if you wish to cancel your debt sooner. To help you decide which type of loan will better satisfy your needs, ask yourself the following two questions:

* Do you need the money in a lump sum or installments? Since you are planning to use the money as a one-time payment on your credit cards, an equity loan will provide you with the funds you need and the extra bonus of a fixed rate rather than a variable. For those borrowers who wish to use the money to pay for ongoing expenses such as college tuition or a long-term remodeling project, the revolving feature of a line of credit on their home would offer the flexibility of accessing only what they need over a period of time rather than owing a larger amount all at once.

* Will you be tempted by the availability of money in a revolving line of credit? One of the hardest questions to answer, but one that we cannot overlook, is how disciplined you will be in not considering your loan as an additional source of income to fund your lifestyle. If your credit cards got out of hand because you lacked the self-control to live within your means, you might be better off with a home equity loan and not have the open invitation to more debt over time.

You are putting your biggest asset on the line and the last thing you want is to end up with more debt and or no equity.

Develop a spending plan and stick to it to make sure that you do not fall in that trap. Consider canceling all but one of your credit cards and charging only what you can pay off at the end of the month.

The equity you have worked so hard to create on your home can offer you a fresh start and free up some money on a monthly basis, but remember that while you may be lowering your monthly payments replacing a more expensive debt with easier terms, you are still looking at the same wolf who's been dressed up as a loving granny.

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By Julie Stav

JULIE STAV, financial author and speaker, is at JulieStav.com. Read her previous columns on HispanicOnline.com, in the business channel.