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    Should You Use a HELOC for Debt Consolidation?

    By Wasatch Peaks on January 3, 2022

    Topics: HELOC

    You may be considering a home equity line of credit (HELOC) to gain access to the value you’ve collected in your home, also known as equity. HELOCs work much like credit cards. You’re given a set credit line based on your home’s equity where you can then withdraw money as needed. 

    HELOC funds can be used to pay college expenses, remodel your home, or build a vacation fund. They also can be useful for people who need another way to pay off high-interest debts. Continue reading below where we break down why using a HELOC for debt consolidation may be right for you.


    Using a HELOC for debt consolidation is a good idea because HELOCs often have lower interest rates than mortgage payments. There are a few things to keep in mind.

    When you’re approved, you could choose to pay off your mortgage right away and then make payments to your HELOC instead. Pay attention to the terms on your HELOC compared with the mortgage you are paying off. The lower your interest rate, the more money you’ll free up each month to pay down the balance or use toward other financial goals.

    Keep in mind that the rate is adjustable – meaning it can increase or decrease over time according to designated benchmarks. This means your monthly payment may increase or decrease as well. If you currently have a good interest rate, a HELOC will allow you to maintain that rate while still obtaining cash to use however you want.


    If you have multiple credit cards or several other loans, you can consolidate all of them into one HELOC. That means you only have to keep track of one payment each month. Make it even easier on yourself by signing up for automatic payments for at least the minimum amount so that you’ll never miss a payment. 

    Simplifying your finances is always a good thing and having one monthly payment decreases your odds of missing a payment. Not only is this more convenient, but it’s also easier to keep track of what you need to pay and when. This can help you avoid late payments and the fees that come with them!


    Using a HELOC for debt consolidation usually lowers your monthly payments since you’ll have a longer loan term and a lower interest rate. If you have less room within your monthly budget, the money you save each month could be exactly what you need to get out of debt faster! 

    Lower monthly payments can make paying debt off more reasonable on a tight budget. However, extending the length of your loan term could cause you to pay more interest overall.

    Keep in mind during the draw period of your HELOC (usually up to 10 years after opening), you only have to pay interest on the balance. This gives you more options on when and how to make payments toward the principal balance. If you’re able to make extra principal payments during the draw period, you’ll quickly reduce the total amount of interest you pay over time.


    While there's a lot to like about HELOCs, there are potential pitfalls to look out for as well. Most can be avoided with a little planning, but you want to be aware of them going into the application process.

    Your Home Is Your Collateral

    Unlike standard signature loans, your home serves as collateral for a HELOC. This means if you’re ever unable to make payments to your loan, it could default. Avoid foreclosure by ensuring to make all payments on time and in full! If you’re having trouble making existing payments, you may want to find other ways to consolidate debt.

    Borrow Responsibly 

    Nobody pays off their credit cards intending to go right back into credit card debt again – but if you don’t practice healthy financial habits, you could find yourself right back where you started. If you use a HELOC to pay off your credit cards and then build up a bunch of new credit card debt, you’ll have both the credit card debt and the HELOC debt to pay back. That might be more than your finances can handle.


    HELOCs are a great option for debt consolidation if you have sufficient equity in your home. This way, you have the most flexibility in what you borrow and when you’ll pay it off. 

    Remember, HELOCs come with variable interest rates. Before applying for one, consider your financial habits, as well as why you need the funds. Read below for more tips on getting the best rate with us today!

    How to Get the Best Home Equity Line of Credit (HELOC) Rate

    Wasatch Peaks

    Written by Wasatch Peaks