The consumer is the true engine of our economy. The more people buy, the better our capitalist system works. While consumerism works well on a macro level, sometimes people over-extend themselves on the micro-level and accumulate debt. If you need to get yourself out of the red, consider using a home equity loan.

Being a good American takes a lot of money. Our businesses thrive when consumers are happy and flush with cash. Even in the harrowing days that followed 9/11, our politicians urged us to get out and go shopping.

Pumping money into the economy is a great way to help America, but it can hurt you on a personal level if you're not careful. Very often, people spend too much money on shopping trips, and acquire debt that they simply can't pay off.

If you've been a loyal consuming American who's now heavily in the red, a home equity loan can help you get back in the black.

HELOC basics

There are two types of second mortgages: A home equity line of credit (HELOC) and a home equity loan. Both can be used to pay off debt, but each has a specific application.

A HELOC works like a credit card; it's a line of credit that uses the equity in your home as collateral. By switching your debt load over to a HELOC, you can take advantage of the loan's favorable interest rate, which is often much lower than credit cards.

A HELOC is a good choice for paying off smaller amounts of debt, primarily because it carries a variable interest rate. However, if the Federal Reserve decides to hike rates, payment on a large amount of debt could prove burdensome.

Home equity loan basics

For larger loads of debt, consider using a home equity loan. This is a fixed-rate, fixed-amount loan. You borrow the money in a lump sum, and make set payments over a certain period of time. Because you're locked into a rate, you don't have to worry about market fluctuations. It's ideal for large, one-time expenditures like home improvements or debt consolidation.

When you shop for a second mortgage, consider a number of different variables. Look for the lowest rates, the best terms, and the lowest closing costs. Make sure that your home equity lender also has a number of references and excellent customer service. Work with a bank or credit union that bends over backward for your business.

If you've built up a hefty amount of debt by spending a little too much time at the shopping mall, take comfort. You're not alone. Many Americans are in the same boat. However, just because others are in the same financial crunch doesn't mean that you shouldn't take action. Get yourself back on the right track by searching for a home equity loan. It's a smart way to pay off your debt, and get your own personal economy booming again.

    Published on December 28, 2007