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Can I Use a Home Equity Loan to Pay Off Debt?

Home » Can I Use a Home Equity Loan to Pay Off Debt?

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Paying off debt can feel like an immense battle, especially when dealing with high interest rates on credit cards and personal loans. A home equity loan to pay off debt can be an appealing option for homeowners looking to consolidate multiple debts into a single, manageable, often lower monthly payment.

By tapping into your home’s equity, you may have a way to secure a lower fixed interest rate and help manage your financial obligations. However, before making this decision, it’s essential to understand how home equity loans work, their benefits and risks, and whether this strategy makes sense for your long-term financial outlook.

Types of Home Equity Loans

Homeowners looking to leverage their home’s value for debt repayment typically have two primary options, including a home equity loan or a home equity line of credit (HELOC). Both allow you to borrow against your home’s equity, but they function differently.

Home Equity Loan

A home equity loan provides a lump sum of money that you repay in fixed monthly installments over a set period. This loan type often comes with a fixed rate, meaning your monthly payments stay consistent, making budgeting easier.

Because the loan is secured by your home, it usually has a lower interest rate than high-interest credit cards or personal loans.

Many homeowners opt for a home equity loan because it provides predictability. If you have significant expenses, such as medical bills, home improvements, or credit card balances, that you want to pay off in one go, this option ensures you receive a lump sum amount with set repayment terms. However, you must know that failing to make payments on the loan could put your home at risk.

HELOC (Home Equity Line of Credit)

A HELOC, or home equity line of credit, works more like a credit card. Instead of receiving a lump sum, you can borrow as needed up to a set limit during the draw period. HELOCs typically have variable interest rates, meaning your payments may fluctuate over time.

Many homeowners prefer HELOCs for their flexibility, but the changing interest rates can make long-term planning more challenging.
A line of credit HELOC is especially useful for ongoing expenses or unpredictable financial needs. Unlike a home equity loan, which requires you to take all the money at once, a HELOC allows you to borrow only what you need and when needed.

This makes it a solid choice for handling fluctuating expenses like home renovations or emergency costs. The feature also makes it appealing for paying off debt if you know more debt is coming.

Related Article: Can I Get a Home Equity Loan For a Manufactured Home?

Why Use Your Home’s Equity to Pay Off Debt?

Using a home equity loan or HELOC to consolidate your high-interest debts provides several benefits.

  • Lower interest rates: Compared to credit cards, which often have high interest rates, home equity loans generally offer more affordable repayment terms.
  • Simplified payments: Combining multiple debts into a single loan reduces the hassle of managing different due dates and payment amounts.
  • Potential tax benefits: In some cases, interest paid on a home equity loan may be tax-deductible. Consult a tax professional to see if yours qualifies for this benefit.
  • Faster debt repayment: If you use a home equity loan responsibly, you can pay off your high-interest credit cards and personal loans faster while reducing the total interest paid over time.

Related Article: Can You Take Equity Out of Your Home Without Refinancing?

What Kind of Debts Can I Pay Off With My Home’s Equity?

  • Credit card balances – Home equity loans often have significantly lower interest rates than credit cards.
  • Medical bills – You can consolidate large medical expenses into a single monthly payment.
  • Personal loans – Combining these with other debts can help streamline repayment.
  • High-interest credit cards – Swapping high variable rates for a fixed rate can improve financial stability.

What Kind of Debts Should I NOT Pay Off Using a Home Equity Loan?

  • Student loans – Federal student loans often have flexible repayment options and lower rates. Additionally, private student loan refinancing providers offer another solution, not tied to your home as collateral.
  • Auto loans – Cars depreciate quickly, and extending repayment over a long period costs more in the long run.
  • Uncertain or highly variable expenses – Using your home’s equity to pay off business or investment debts can be risky.

Related Article: Installment Loans Vs. Revolving Credit

Pros and Cons of Using a Home Equity Loan to Pay Off Debt

Pros

  • Lower interest rates than credit cards and personal loans
  • Fixed monthly payments with a fixed interest rate
  • Potential tax advantages on interest payments
  • Simplifies repayment by consolidating multiple debts into a single payment
  • Can improve your credit score by lowering credit utilization
  • Can help homeowners tap into their home’s equity for large expenses

Cons

  • Your home is collateral, meaning missed payments put your ownership at risk
  • Closing costs and fees add to borrowing costs
  • Extends debt repayment over a longer period
  • Variable rates on HELOCs can increase
  • Not ideal for every type of debt
  • Can increase total debt if you don’t control spending

Is Using a Home Equity Loan to Pay Off Debt a Good Idea?

A home equity loan to pay off debt can be a good option for homeowners with substantial equity and reliable income. It’s particularly beneficial for those with high-interest debts who want to secure a lower fixed rate and more easily manage their debt obligations. However, because your home serves as collateral, it’s essential to ensure you can afford the monthly payments. If there’s any risk of default, this strategy may not be your best choice.

Related Article: HELOC Vs Home Equity Loan: What You Need to Know

How to Get a Home Equity Loan to Pay Off Debt

Check your equity: Lenders typically require at least 15 to 20% equity in your home.
Review your credit score: A higher score improves your chances of securing a lower fixed interest rate.
Compare lenders: Look for competitive interest rates and low fees. Choose one of the best home equity lenders to help ensure success.
Determine loan terms: Decide between a more traditional lump sum loan or a line of credit HELOC.
Apply for the loan: Gather necessary documents, including income verification, mortgage statements, and others.

Related Article: How Long Does it Take to Get a Home Equity Loan?

Frequently Asked Questions

What is the downside of a home equity loan?

Does having a home equity loan hurt your credit?

How much home equity do I need to qualify for a loan?

About Author

Dr. Ali
Deane Biermeier is a certified financial educator through the University of Minnesota and a respected authority in financial research, writing, and editing, renowned for his in-depth analyses and expert advice. With a distinguished career that previously spanned home improvement, real estate, and finance topics, Deane's role at Trusted Company Reviews focuses exclusively on finance. Deane has contributed to leading publications such as Forbes Home, US News and World Report, Newsweek Vault, and others. Since joining TrustedCompanyReviews.com in 2023, he has solidified his reputation as a crucial resource for clear, factual financial guidance.
Dr. Ali

Deane Biermeier

Last Updated: July 15, 2025

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