Investment banks aren't the only ones deleveraging today. Many consumers are cutting debt, and planners are helping them. "We've been very involved," says Lucas Bucl, a planner at Accredited Investors in Edina, Minn. "Being proactive resonates with clients."

Debt management discussions often start with home mortgages, which are the most common loans among financial planning clients. For example, should clients buy real estate for cash or use a loan? External factors can make a difference.

In 2002, Ross Levin, president of Accredited Investors, had clients who wanted to buy second homes. Rather than sell equities to buy those homes, they financed them when interest rates were low and the stock market was depressed.

In 2007, Levin told a client who had just received a large venture capital payout to use the payout to buy a second home, rather than use a mortgage and invest the money in the market. With stocks at record levels, taking on debt to buy more equities didn't seem advisable.

PONDERING PREPAYMENTS

What about homes that already have been bought with borrowed funds: Should clients pay down their mortgage? "The decision is half financial and half emotional," says Dave Foster of Foster & Motley, a wealth management firm in Cincinnati. The financial side is straightforward. If a client has a 6% mortgage, paying down the mortgage generates a 6% return-and after counting the tax deduction, will typically produce a return of around 4%.

The maneuver often makes good sense, despite the loss of liquidity. "Some clients have large amounts of money in accounts paying little yield," Foster says. "Using that cash to pay down home mortgage debt will produce a significantly higher return" than the account.

Of course, cash-heavy clients have other options besides prepaying their mortgages. Investments in equities and perhaps fixed income could yield annualized returns higher than 4%, after tax, starting from today's low asset values. But Elfrena Foord of Foord, Van Bruggen, Ebersole & Pajak, a financial planning firm in Sacramento, Calif., points out that retirees often prefer to prepay. "People love not having a mortgage-it makes them feel more financially secure after they retire," she says.

REFI MADNESS

Besides prepaying, homeowners can refinance existing mortgages to reduce monthly obligations and boost cash flow. As of this writing, Bankrate.com put the interest rate on a 30-year, fixed-rate mortgage at 5.19%-the lowest since December 1956.

Refinancing is not always a slam dunk, though. "Banks are not being cooperative at the moment," says Vicki Schultz, a planner in Reno, Nev. Greg McBride, a senior financial analyst at Bankrate.com in North Palm Beach, Fla., says consumers also need to show home equity, based on a recent appraisal, in order to refinance.

Assuming clients have home equity and reliable income, planners can play an active role. "We have a 'watch list' of clients who might benefit from refinancing a home loan, and we keep in touch with local banks and credit unions," Bucl says. "When we hear about a niche program, we contact clients who can benefit." That niche program might offer low closing costs or a low interest rate on new loans.

Refinancing and prepayment can be combined; the new home loan can be less than the outstanding balance on the existing loan. A client with a $300,000 mortgage balance, for example, may refinance a $250,000 loan, using $50,000 in cash to trim the debt. "We've been doing that to get clients out of jumbo loans," Foster says. "In our area, jumbo mortgages are anything over $417,000." (Some costly housing markets have a higher cutoff.) "A client with a larger mortgage might refinance to a $417,000 mortgage, bringing down the interest rate."

WHEN HELOCS FREEZE OVER

Another strategy is to use cash plus a home equity line of credit (HELOC). Someone with a $550,000 mortgage balance might use a $417,000 first mortgage, $33,000 in cash, and a $100,000 equity line for refinancing. Rates on home equity lines are low now, and a client can pay down the line to reduce total debt. Bankrate.com reports that a home- owner in Cincinnati with an excellent credit score can pay as little as 4.5% for a $100,000 HELOC.

Christopher P. Parr, a planner in Columbia, Md., suggests HELOCs to clients as a financial planning tool. "I tell them to get credit lines open before they need them," Parr says. "Then they'll have access to credit if it becomes necessary."