Risks and rewards ... using equity in your home to pay off credit card debt.

TWO YEARS AGO PATRICIA ROBERTS-ROSE OF CATONSVILLE, Maryland, stopped working full time to stay home with her two young children, Amaya, 6, and Aliya, 3. Knowing that they now would be relying on one salary, Roberts-Rose and her husband, Eugene, cashed in on the equity in their home to consolidate bills and supplement their household income. The couple obtained a home equity line of credit of $30,000 at 8% interest.

The Roses are typical of many American families. Nearly one-fourth of all homeowners have a home equity loan or line of credit. According to the Nilson Report, a newsletter that tracks the use of credit, U.S. household debt has increased 147% in the last 10 years, while credit card debt has increased by 69%. Translation: Consumers are borrowing against the equity in their homes to pay down credit card balances.

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Depending on an applicant's creditworthiness, a home equity line of credit may let a homeowner borrow 75% to 85% of the appraised value of the house minus the amount owed on the first mortgage. Let's say the market value of your home is $100,000 and the outstanding mortgage is $30,000. Thus, 80% of the home's value ($100,000 x 80%) is $80,000. Subtract the $30,000 you owe. Hence, $50,000 would be the maximum you could borrow.

"In the right situation, a home equity line of credit can be a possible option for reducing credit card debt," says Bill Hardekopf, CEO of LowCards.com, which tracks the credit card industry. But take a hard look in the mirror before applying for one. "If you do not have your financial life in order, or you don't have discipline, then I don't think it's a good idea," says Hardekopf. "It should never be used as a way to extend your credit even more."

Financing education, making home improvements, paying medical bills, and relieving debts incurred through job loss are examples of one-time financial stresses that can be relieved by using one's equity, says Gwendolyn V. Kirkland, a certified financial planner with Kirkland-Turnbo & Associates in Matteson, Illinois. With a sound strategy and timeline to pay it back, she adds, there are advantages to using a home equity line of credit to pay bills: You can pay the debt off sooner thanks to lower interest rates, and the interest is tax-deductible.

But there are drawbacks. There is no guarantee that house values won't drop; you could end up owing more than your house is worth. Always keep in mind the added risk of converting credit card debt to a home equity loan or line of credit. "If you don't pay those credit cards, the worst that can happen is it can rain your credit," says Ray Hooper, education and housing director for Consumer Credit Counseling Service of Greater Dallas. With a home equity line of credit, "you sign over as collateral the equity in your house. If you are not able to pay that debt, you could lose your house."

             REWARDS:                              RISKS:

1 Converts to a lower interest       1 Is based on your home's value,
  rate, helping you pay down debt.     which varies. If the value
                                       drops, so does your equity.
2 Shows fewer outstanding loans on
  your credit report.                2 Could cost thousands of dollars
                                       in fees and paperwork. Plus,
3 The interest is tax-deductible       penalties may be incurred if
  in most cases.                       the loan is paid off early.

                                     3 Could cause you to lose your
                                       home if the loan isn't paid
                                       back.