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%, for example, paying 7.5% on a home equity line is like paying 5.25% (70% of 7.5%), after tax. That’s a much better deal than paying up to 20%, 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.
