(MONEY Magazine) – Let's face it. Few Americans can live like Americans without some debt. The house, the car and the college education are necessities that the large majority of us must pay for on the installment plan. Until now we have tended to go in hock ad hoc. But with inflation leashed and Uncle Sam withdrawing his tax subsidy on interest payments, there is a new American way of debt. It calls for deploying more of our borrowing power to make money even as we spend it. Smart credit management can send you soaring like Franklin D. Ohlin, a Merrill Lynch financial consultant in Colorado Springs. Ohlin, 34, is using a glider to test-pilot the firm's home-equity credit line, called Equity Access. Last May he borrowed $10,000 against his $175,000 house to buy a single-seat Schweitzer 1-36 sail plane. He is learning to fly it on the Rocky Mountains' world-famous thermals, which can loft gliders to 18,000 feet. At first glance, borrowing against your house to finance an adventurous hobby doesn't look too shrewd. But wait. Ohlin, who is a member of Colorado Springs' Black Forest Soaring Society, immediately leased his plane to the society. Fellow members get to use it at 40% off the normal rate. He expects his plane to pay for itself in five years and then throw off income. As Ohlin will tell you, knowledgeable management of your borrowing power demands the same attention to detail as handling your investments does. You have to monitor your rate of return, the tax status of your loan and, above all, what's happening to inflation and interest rates. And you must be able to get out if interest rates take a sharp upturn. The difference is this: professional investors have built a body of lore and a set of accepted maneuvers that are based on experience and research, while credit management as a discipline hasn't progressed beyond home economics I and II. So far nobody has defined the term credit management precisely. It can mean something as simple as knowing where to borrow at low rates when you have to. It can also mean making profitable moves such as paying off old debts with cheaper new money or using other people's money to your own gain. Either way, it is a smart new approach to debt that is worth learning. In borrowing against his house with a home-equity loan, Frank Ohlin is using the nation's handiest new credit tool and its most vast financial resource. He is, in fact, a specialist in home equity and other lending plans that Merrill is marketing as a credit management program. Home-equity credit lines have all the attributes of revolving charge accounts, plus the flexibility of letting you repay the debt at your own pace. Some $1.2 trillion of borrowable equity resides in American homes, and the 1986 Tax Reform Act provides a solid rationale for using it. While deductions on all other forms of consumer credit are being phased out over the next four years, home-equity interest remains partly and in many cases fully deductible. Unless you know how to handle credit, though, the home-equity dispensation can lead to excesses reminiscent of tax-driven real estate deals that Congress hoped it had laid to rest. Marvin Starr, an Oakland, Calif. real estate attorney and raconteur, tells the following not wholly apocryphal story: A doctor to his banker: ''I've gotta borrow some money. I need a tax write-off.'' Banker: ''Great. I can make you a loan at 12%.'' Doctor: ''I can't afford 12%. I've got to pay 15%.'' To conservative financial advisers, borrowing against your house is an abomination. Richard C. Young, an investment manager in Newport, R.I. and author of Richard C. Young's Financial Armadillo Strategy (Morrow, $17.95), condemns home-equity lines as ''sabotaging a lifetime financial program'' and ''consuming the financial host.''

Confirming Young's fears -- but certainly not sharing his attitude -- George E. Kilguss Jr., executive vice president for the retail banking group at Citizens Bank of Providence, R.I., reports: ''These lines of credit are being used for purposes you wouldn't imagine. I'm talking liquor stores and grocery stores. People say, 'Hey, that's the way I'm going to get my deductions.' I think Congress was wrong to treat home-equity loans this way, but people are doing what Congress has encouraged them to do.'' Kilguss and other concerned bankers train their loan officers to explain that home-equity lines are best used for long-term investment and educational purposes or for home improvements. In counseling clients about credit management, Joanne Bickel, vice president in charge of financial planning in the private banking department of American Security Bank in Washington, D.C., de-emphasizes tax angles. Her philosophy: ''The primary use of credit should be to increase the left side of your balance sheet.'' What you need -- what every prudent person needs -- is a low-cost credit reserve with deep pockets and a medium-term (say five-year) plan for its possible use. Homeowners whose property has multiplied in value can raise a large amount by refinancing their mortgages, but in doing so they take on a 15- to 30-year obligation. Mortgage refinancing makes excellent sense when your first loan is still young and two or more percentage points higher than current interest rates.

More flexible borrowing power, however, at variable rates currently below 10%, springs from three main sources: a home-equity credit line, a loan against your securities, or an unsecured line of credit from a bank. Each has strengths, weaknesses and special uses, as described in the article beginning on page 161. Here, let's focus on general purposes: Refinancing. First see whether you can profit by restructuring your present debts. If you apply for a home-equity credit line, the lender doubtless will insist that you use part of it to pay off any second mortgage on your house. ''We want to clear that off so that we're not third, fourth or fifth in line for our money in a default,'' explains Ohlin. The typical household has additional cleaning up to do. Take this scenario supplied by William T. Kirkpatrick, manager of the Ready Equity Department at Citizens & Southern National Bank in Atlanta. A family owes $20,000 on a car loan, home improvements, an unsecured vacation loan and Sears, Penney and MasterCard accounts. Interest on these debts averages 15%, with tax deductibility waning on all but the home improvement loan. (If you itemize, this year 65% of your consumer interest is deductible, next year 40%, then 20%, 10% and out.) Loan payments for Kirkpatrick's sample household total $762 a month, or $9,144 a year. Since there is plenty of equity in the family home, Kirkpatrick arranges a tax-deductible 9.5% Ready Equity line of $25,000, of which $20,000 % is drawn down to settle the other debts. Monthly payments of 2% of the balance start out costing $400, freeing up $362 a month and $4,300 a year. If the family takes Kirkpatrick's advice, it will use at least some of that saving to accelerate repayment of the home-equity loan and will earmark the rest for investments in the family's health and welfare, such as orthodontics and college. ''It's almost impossible to argue with that kind of refinancing,'' says Richard Young, the credit hater. He admonishes, however, ''Do it once and have it be the last time. When you sign the loan form, know that you are paying a premium for financial failure.'' At worst, remember, the premium is a visit from the sheriff to serve foreclosure papers on your house. Conserving capital. By commanding credit when you need it, you can escape having to sell assets with growth potential to raise cash in a hurry. A $350,000-a-year chief executive officer in the Washington, D.C. area was hit recently by a six-figure personal tax bill and found himself with a $40,000 cash deficit. Neither he nor his wife believed in personal borrowing, but their alternative was to sell some of the stock he owns in his fast-growing company. ''In your case it's almost immoral not to borrow,'' Joanne Bickel, their financial planner, advised them. ''I sat the wife down at my computer,'' she says, ''and showed her that if the stock appreciated at its present rate, in five years it could make them richer by half a million dollars or more.'' Bickel's solution was a $100,000 unsecured line of credit at an adjustable rate of prime plus one point -- 8.5% right now. Her clients kept their stock, paid their taxes, spent $20,000 on other needs and quickly began reducing their loan. They don't have any plans for the remaining $40,000 of borrowing power at their disposal. On the other hand, it doesn't cost them anything. ''The wife just wants it there in case,'' Bickel says. In other ways too, credit lines can help you make better use of your assets. They can serve as a substitute for an emergency fund, suggests Madeline Novek, head of Novos Planning Associates in New York City. Instead of tying up three months' salary in a money-market fund, open a home-equity line and don't hesitate to lock up your emergency money in a CD or a Treasury bond, where it can earn a higher return. Investment leverage. Then again, if most of your wealth is tied up in your house, some planners suggest employing a gentle form of leverage to diversify , this investment. Mark M. Tucker, a tax lawyer whose Decision Support Group in Alamo, Calif. provides training materials on investment management and other aspects of financial planning as a fringe benefit for corporate employees, states the basic rule of leverage in one sentence: The risk-adjusted after-tax rate of return on a leveraged investment must exceed the after-tax cost of borrowing. A tenable strategy for diversifying the money in your house is to take out a home-equity line and draw from it an equal sum each month or quarter to buy mutual funds. Especially when stock prices are appreciating steadily, this procedure, called dollar-cost averaging, prevents you from reinvesting all your money at the top. Meanwhile, the value of your house will increase as much as it would have without the loan. Investing in a business. Using your house or securities as collateral for a loan to start a business is more perilous than investing in mutual funds. For that reason, Patricia A. Spruill, a former economics professor who now does planning in the private banking division of NCNB National Bank in Charlotte, N.C., warns against it. ''I point out to people that if a bank won't back their venture on its merits, maybe they should think again whether it has merits.'' Even when a bank says yes to a small-business loan, however, the rate probably will top what you would pay for a home-equity line. One of Ohlin's customers, a southwestern Colorado builder, borrows against his house to finance new projects because he gets better terms than local banks are offering on construction loans. Betty Ross, a Washington, D.C. travel writer, took a chance on a home-equity business loan and seems to be winning. Says Ross, who did a stint as press secretary to inflation czar Alfred E. Kahn in the Carter White House: ''I hate borrowing money. I was brought up to pay cash for everything.'' She was writing a guide book, though, and wanted to be its publisher because ''writers don't make money, publishers do.'' Overcoming her credit aversion, Ross took out a $30,000 equity line in December 1985 on her mortgage-free house in the District, which she has owned since 1955. The bank, American Security, charged her $398 up front and a variable rate that began at 11% and later fell to 8.5%. The money she drew down, $25,000 at its peak, covered the fees of her editor, indexer, designer, engraver, printer and other specialists. She began making $298 monthly payments out of her freelance income. * Ross' Americana Press published her handsome paperback, A Museum Guide to Washington, D.C. ($9.95), last June. By marketing it herself to museum shops as well as through regional and national distributors, she has sold nearly 9,000 copies, and on Feb. 6 she paid off the balance of her loan. Now in its second printing, the guide will earn her $10,000 this year, she estimates. Does she intend to finance a third press run with home equity? You bet.