Credit card debt is like a messy closet. If you do nothing to pick up your clothes and do the laundry, the mess will spread like a California wildfire. Accumulating credit card debt is much the same way. If you don't take steps to clean it up, it will fester, and eventually stink worse than your closet's dirty laundry. However, there's a tool that can help with debt management and clean up the mess-the debt consolidation loan .

Tax deductible cleaning supplies

Most homeowners burdened with debt opt for a home equity debt consolidation loan. With this type of loan, you can borrow money based on the equity in your house to pay off all your credit cards. After you've zapped all the balances, your new loan will most likely be at a lower interest rate than what the credit card company charged, resulting in lower monthly payments. And because home equity loans are second mortgages, the interest payments are tax deductible (up to a $100,000 limit).

Two loans to suppress the mess

The second mortgage comes in two basic forms-the home equity line of credit (HELOC) and the home equity loan. The HELOC works like a credit card; you're granted a line of credit, and you don't pay interest until you actually make a withdrawal. It provides great flexibility, although its rates are variable and will increase if interest rates spike.

The home equity loan is a fixed-rate product with a set repayment term. This loan contains no surprises. You know what your monthly payment will be, and you don't have to worry about interest rates rising. However, if you need to tap more money, you will need to refinance the loan all over again.

There are plenty of lenders willing to help you clean up your credit card mess with either a bad credit mortgage or a debt consolidation loan. Shop vigorously. Look for the lowest closing costs and fees that you can find. But above all else, take action now. Messy debt won't go away by itself. Only you have the power to clean up your financial act.

Published on December 15, 2006