--- title: Your Home Equity Could Be the Secret to Getting Out of Debt description: With a home equity loan or HELOC, you may be able to consolidate expensive debts, get a lower interest rate and pay them off faster. authors: - name: Mallika Mitra role: Contributing Editor url: https://money.com/author/mallika-mitra/ bio: Mallika Mitra is a contributing editor for Money, based in Chicago. She has covered investing and retirement for seven years and her work has appeared in CNBC, Bloomberg, Kiplinger, AARP, Barron’s, Bankrate, The Daily Upside, ETF.com, The Bond Buyer, PLANADVISER, PLANSPONSOR and Investopedia. education: Craig Newmark Graduate School of Journalism at CUNY Kalamazoo College at_money_since: 2020 articles: 399 covers: - Personal Finance - Banking - Business - Career Advice - Credit - Credit Cards - Debt - Economy and Politics - Education - Health and Wellness - Housing - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Pets - Professional Services - Retirement - Shopping - Taxes - Technology also_seen_in: - CNBC - Bloomberg - Kiplinger - Barron's - Bankrate - WGN-TV - CBS News Radio - This Morning With Gordon Deal - Everyone's Talkin' Money social: - https://twitter.com/mitra_mallika - https://www.linkedin.com/in/mallika-mitra-4577a386/ editors: - name: Kaitlin Mulhere role: Editor url: https://money.com/author/kaitlin-mulhere/ bio: Kaitlin Mulhere has been covering the intersection of college and personal finance since 2015. She enjoys breaking down the complexities of college costs and financial aid, and she also runs Money’s Best Colleges. education: University of Florida at_money_since: 2015 articles: 218 covers: - Personal Finance - Banking - Business - Career Advice - Credit - Credit Cards - Debt - Economy and Politics - Education - Health and Wellness - Housing - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Retirement - Shopping - Taxes social: - https://twitter.com/KMulhere - https://www.linkedin.com/in/kaitlin-mulhere-64503048/ updaters: - name: Kaitlin Mulhere role: Editor url: https://money.com/author/kaitlin-mulhere/ bio: Kaitlin Mulhere has been covering the intersection of college and personal finance since 2015. She enjoys breaking down the complexities of college costs and financial aid, and she also runs Money’s Best Colleges. education: University of Florida at_money_since: 2015 articles: 218 covers: - Personal Finance - Banking - Business - Career Advice - Credit - Credit Cards - Debt - Economy and Politics - Education - Health and Wellness - Housing - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Retirement - Shopping - Taxes social: - https://twitter.com/KMulhere - https://www.linkedin.com/in/kaitlin-mulhere-64503048/ published: '2026-10-30T20:35:43.000Z' modified: '2026-10-30T20:35:43.000Z' section: Personal Finance tags: - Sponsored word_count: 1201 canonical: https://money.com/use-home-equity-to-pay-off-debt/ type: Article source: structured-blocks --- > **Disclosure:** We may earn a fee if you click on the links below. Compensation does not determine ranking. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![Photo Illustration of a Scissor Jacks lifting up a stack of money and a house](https://img.money.com/2024/10/Debt-Relief-With-Home-Equity.jpg) Sponsored by: ![](https://s3.consumersadvocate.org/prd/image/image/35885/6bc66921-1eda-475f-910e-05703dc573c2.webp) Getting your finances back on track doesn’t have to be complicated. Achieve makes it easy to get a personalized plan—whether you’re paying down unsecured debt, borrowing cash, or making the most of your home equity. [Go to Achieve.com](https://money.com/pr/e908d8ba0cc7?ap_referrer=%2Fuse-home-equity-to-pay-off-debt%2F&apxa1=homepage) ## Key Takeaways - Just 33% of Americans with unmanageable debt were comfortable with the idea of borrowing against their home to consolidate more expensive debt, a 2026 Achieve survey found. - Yet HELOC and home equity loan rates can be significantly lower than credit card APRs, potentially saving borrowers a significant amount of money. - A HELOC offers flexibility to borrow as needed, while a home equity loan may be better for a one-time payoff. - Falling behind on payments could put your house at risk, so consolidating debt this way works best with a clear repayment plan. When you’re crunching the numbers to figure out how to pay off debt, you may be overlooking a major source of help: your home. Borrowing against your home equity — or the difference between how much your home is worth and how much is left on your mortgage — could be the key to consolidating debt and ultimately saving a ton on interest. Homeowners in the U.S. are sitting on a record high amount of equity, with the average mortgage-holder having about $310,000, according to real estate data analytics firm Cotality. That’s the case even as Americans are also racking up expensive credit card debt. The typical credit card balance is now more than $6,600, according to TransUnion data. The result is a rebound in interest for home equity products, especially home equity lines of credit or HELOCs. These products, sometimes referred to as second mortgages, allow you to borrow and spend up to a certain credit limit, then repay the money on a schedule agreed upon between you and your lender. Still, surveys suggest that tapping home equity to pay down higher-interest debt isn’t an especially popular strategy: Fewer than a quarter of respondents in a recent [Achieve](http://achieve.com) and Money.com [survey](https://www.achieve.com/learn/achieve-insights/rising-debt-is-taking-a-toll-on-americans-financial-and-mental-health) said they were comfortable with the idea of using home equity to pay off higher-interest debt. That share jumps to 33% of respondents who felt they had “far more debt than is manageable” — but it still lags behind other consolidation options, including taking out a personal loan. Read on for the pros and cons of [using HELOCs as a debt consolidation tool](https://money.com/should-you-use-heloc-to-consolidate-debt/), plus how to use the equity in your home to pay off your debt. ## Pros and cons of using a HELOC to pay off your debts If you’ve built up a significant amount of debt, especially high-interest debt like credit card balances, a HELOC can be useful in snagging a lower interest rate. The rates on HELOCs today start around 6% — significantly lower than the average annual percentage rate (APR) on credit cards, which is above 22%. Because HELOCs don’t typically give you a lump-sum payment, they also offer a bit more flexibility than other types of loans. These products are revolving lines of credit, which means you can take the money as needed out of the total amount approved and control how much debt you accumulate. You only pay interest on the amount you’ve actually withdrawn from your line of credit. There’s also flexibility around how you [use the HELOC](https://money.com/heloc-to-consolidate-debt-pros-cons/), since there aren’t any restrictions dictating what you have to put the money toward. (Home equity loans, a cousin to the HELOC, work similarly but they are distributed as a lump sum, and you’ll start paying interest on the full amount immediately.) Plus, interest paid on a HELOC can be deducted on your taxes if you use the proceeds on a home project. This won’t help for homeowners who only want to use cash from a HELOC to pay down debt, but many borrowers tap their line of credit more than once during the draw period, meaning you could first borrow to pay down debt and then borrow again later for a home project. Like many financial products, HELOCs come with downsides, too. “You are borrowing against your home equity and you’re putting your house up as collateral, so in the worst case scenario, the lender essentially has a lien on your house,” says Glenn Downing, founder and principal of investment advisory firm CameronDowning. “You’re putting your family’s residence on the hook.” And if the value of that home drops, you could end up owing more than what your home is worth. Some lenders offer fixed-rate HELOCs that are ideal for debt consolidation since you’ll have a predictable payment. But generally speaking, HELOCs come with variable interest rates, which means you may not be able to lock in a low fixed rate and may have to deal with fluctuations in your expected payments. Translation: You’ll pay more when interest rates go up. HELOCs can also make it tempting to take on more debt. You can typically get a HELOC that's worth up to 85% of your home’s value, minus what you still owe on your mortgage. That means if your home is worth $350,000 and you owe $150,000 on it, you could have access to a credit line up to $147,500 — much more than you may need to pay off your high-interest debt. Mike Miller, a financial advisor at Integra Shield Financial Group, says that he always asks clients who are interested in HELOCs *why* they need that extra cash. “There may be some underlying issue there related to spending,” Miller says. ## How to use a HELOC to pay off your loans When you use a HELOC or home equity loan to consolidate your debts, you’re essentially borrowing from one source (your home) to pay off other, more expensive sources of debt (like your credit cards). When you first get a HELOC, your lender will determine how much of your home equity you can actually borrow against. During this initial step, be prepared to pay some upfront costs like application or origination fees — though some lenders may waive these fees or roll them into the line of credit. After your loan has been funded, you can start spending during what’s called the borrowing period or draw period, which usually lasts five to 10 years. You may have to take out an initial amount or borrow a minimum amount each time you withdraw from your line of credit, depending on the terms outlined in the HELOC agreement. As soon as you get the cash, you can start paying off your more expensive debts. Typically with a HELOC, you spend the money as needed; that can make HELOCs useful if you want flexibility to first consolidate your debts and then have some access to additional credit over the coming years. In fact, Miller says he’ll sometimes encourage clients to establish a HELOC even if they don’t plan to immediately use the money, depending on their situation. “It’s kind of like an emergency fund,” he adds. If, on the other hand, you know you only want to use the money for a one-time [credit card debt payoff](https://money.com/ways-to-pay-off-credit-cards/), you may be better off with a home equity loan than a HELOC. With this loan, you can borrow exactly what you need to pay down your higher-rate balances, and then immediately start paying back the lower-rate debt. Repayment structures on HELOCs are more variable. Some products allow interest-only payments during the draw period, while others require principal and interest payments from the start. Of course, in this case, the goal of using a HELOC is to make it easier to pay down your debts. To avoid a repeat where you're facing unaffordable payments again, it's best to either choose a line of credit that is designed with a structured, fully amortizing repayment schedule or to voluntarily pay more than just the interest so your payments don't balloon down the road. ## FAQs about using home equity to pay off debt ### Will using a HELOC to pay off credit cards help or hurt my credit score? It could help, mainly because paying down credit cards lowers your credit utilization ratio. But the effect depends on your credit profile and the scoring model. Opening a HELOC can also cause a small temporary dip because of the hard inquiry and new account, so don’t assume your score will automatically rise. ### What credit score and how much equity do I need for a HELOC? Requirements vary by lender, but you’ll typically need a credit score of at least 620 to 680, at least 15% to 20% equity in your home and a debt-to-income ratio below about 43%. Some lenders allow DTIs as high as 50%. Generally, stronger credit and more equity can improve your chances of qualifying and getting a better rate. ### Is a cash-out refinance better than a HELOC for paying off debt? It depends on your mortgage. A cash-out refinance replaces your entire mortgage with a larger loan, so closing costs generally apply to the full new balance. It may make sense if you can get a competitive mortgage rate. If you already have a low mortgage rate or only need a smaller amount, a HELOC may be cheaper because it leaves your first mortgage untouched. ### What happens if I can't make my HELOC payments? Because your home secures a HELOC, foreclosure is possible if you stop making payments. Missed payments can also lead to fees and damage your credit. The foreclosure process and protections available can vary depending on your loan and state law. If you think you may miss a payment, contact your lender or servicer as soon as possible to ask about repayment or hardship options. *Editor's note: This story was originally reported and published in October 2024. 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