One consideration: You might want to consolidate multiple debts into a single debt with a relatively low interest rate. The saving opportunities may be increased if you take out a home equity loan or credit line (where permitted by state law). Reason: Interest paid on a qualified loan may be deductible on your federal tax return (consult your tax adviser for specifics). In contrast, you generally cannot deduct interest expenses incurred for personal reasons (other than student loans).

Furthermore, consolidating your outstanding debts may give you more time to straighten out your financial affairs. All things considered, it is generally a sound approach.

There are two main types of loans that allow you to tap the equity built up in a home: home equity loans and revolving lines of credit. Let’s take a closer look at each one.

1. A home equity loan usually has a fixed rate of interest and a set term of years. The payments due under the loan are level. Depending on the lender, you may have to pay an application fee and certain standard closing costs (e.g., attorneys’ fees, title insurance, recording and filing fees, points).

It might make sense to pay a higher interest rate ifyou can avoid some closing costs. Compare all the numbers.

2. As an alternative, if you are eligible, you may be able to obtain a revolving line of credit using your home as collateral. The interest rate generally is variable. Some lenders charge no application fees or closing costs, while others charge an annual fee.

Any loan that is secured by your principal residence must be considered very carefully. You don’t want to spend sleepless nights worrying about your main asset. In addition, a number of other factors should enter into your decision.

Some debts are not prime candidates for consolidation. For instance, you may want to continue your normal routine for bills that carry no interest (e.g., payments to your doctor or dentist). When you consolidate your debts, you lose the flexibility of being able to decide which debts should be paid in times of a cash crunch.

Once you consolidate multiple loans, you may be tempted to resume old spending habits. In a word—don’t. Consider debt consolidation as a means for helping to reduce debt, not putting yourself (and your family) in deeper. Caution: This approach is not necessarily right for everyone. Also, be wary of con artists who use debt consolidation as a vehicle for scamming you out of more funds.

Finally, even if you do not consolidate debts, keep a close watch on your assets. Make sure you don’t incur more debt than what you can reasonably handle.