The interest you pay on a home equity line of credit is tax-deductible, in most cases. However, interest is not deductible for many other types of loans, such as auto loans and credit card debt.
Therefore, you might want to apply for a home equity line and use it to pay off other debt. If your effective tax bracket is 30 percent, for example, paying 7.5 percent on an home equity line is like paying 5.25 percent (70 percent of 7.5 percent), aftertax. That’s a much better deal than paying up to 20 percent, non-deductible, on some types of debt.
Even so, you shouldn’t extend the term of your debt when you go to a home equity loan. If you were on a schedule to pay off your credit card debt or your car loan in three years, for example, you should keep up those same payments after you switch to a home equity loan.
