Should I Use a HELOC to Pay Off Debt?

The equity built through home ownership can serve myriad purposes beyond bankrolling a new dream kitchen or that addition you need for a growing family. Under the right circumstances, a home equity line of credit (HELOC) can be a good option to pay off mounting debt.

A HELOC is a revolving line of credit that uses your home’s equity as collateral and allows you to borrow as little or as much as you require. You only pay interest on the amount withdrawn.

With the average credit card balance standing at $6,580, according to TransUnion, it’s no wonder homeowners might see a HELOC as a sound way to pay off higher interest debt and save money.

“Using home equity funds to pay off debt can be an excellent course of action under the right circumstances,” said Kyle Enright, president of lending at Achieve, a digital personal finance company in Tempe, Ariz. Enright cautions that disadvantages to taking out a HELOC in some cases might mitigate the benefits.

“The homeowner (must be) comfortable using their home as collateral,” Enright said. “If you miss payments, you run the risk of losing your home to foreclosure.”

How to Use a HELOC to Pay Off Debt

Using a HELOC to get out of debt can be a reasonable option, provided you have a stable income, a plan to pay the loan back and don’t give into temptation by dipping into that money for luxuries instead of absolute necessities.

But first, you must have ample equity in your home. The money available to you in a HELOC is the difference between your home’s value and what you still owe on it.

“Ideally, you should borrow no more than 80-85% of your home’s value,” Cami Anderson, Mortgage Lending Manager at Wasatch Peaks Credit Union, said. “Some institutions offer HELOCs up to 100%, but be cautious of accepting those offers, which can leave little to no equity cushion if you need to sell your home.”

When considering a HELOC you are not limited to using the bank that holds your mortgage. In fact, financial advisers recommend you shop around at other banks, credit unions and online resources to get the best rate.

Lenders will review your application and determine your eligibility through a credit check. A home appraisal may be required.

Is Using a HELOC to Pay Debt a Good Idea?

Taking out a HELOC can be an attractive option especially if you are carrying considerable high interest credit card debt.

Even though HELOC rates are primarily variable and (beware!) can increase based on market conditions, HELOC interest rates can be two or three times lower than the average credit card interest rate. Still, it’s important to exercise caution before pursuing a HELOC.

Your financial advisor or a nonprofit credit counselor can help you navigate the pros and cons of using a HELOC to pay off debt and, just as importantly, help you create a budget that prioritizes repayment.

“It’s especially important to ensure you can pay more than just the interest only minimum, especially when consolidating,” Anderson said. “Forgetting or failing to pay down the principal can end up doing more harm than good.”

Pros

If you’re swimming in credit card debt, you already know how interest rates as high as 25%-30% can trap you in a rip tide. By comparison. HELOC interest rates might look like a lifeline.

(“HELOCs) let you access your home equity without taking on more debt,” Michael Gifford of Splitero, a fintech provider for home equity investments, said. “So, you’re not piling onto your already heavy monthly bills and can put the money toward chipping away at your debt.

“Using (a HELOC) can also help you get your financials back on track to increase your credit score and help you eventually qualify for other financial products should you need them. Plus, you remain the owner of your home and continue living in it.”

There are other benefits to using a HELOC to get out of debt:

• HELOCs typically carry much lower interest rates. The average HELOC rate in June 2025 nationally was 8.14 percent, though rates vary based on a number of variables.
• You only borrow what you actually need.
• A HELOC can help simplify your finances.

“If paying off multiple credit cards or debts with HELOC funds, you’re left with just the one, lower-rate HELOC payment,” Enright said.

• A HELOC offers flexibility in repaying the loan. The repayment period for a HELOC can be up to 30 years.
• If used judiciously, HELOCs can help you rebuild credit.

“Debt, especially high-interest debt, can hurt your ability to qualify for other financial products and can put you into a spiral of financial stress,” Gifford said. “An HEI (Home Equity Investment) can help a homeowner get out of this and get some peace of mind.”

Cons

While acknowledging using a HELOC to pay off debt carries some benefits, Gifford believes there are less risky options.

“I would not recommend (it) since HELOCs are secured by your home,” he said. “So, if you pay down your debt and then miss your monthly HELOC payment, you could risk foreclosure.”

Other reasons to be wary of when using a HELOC to pay off debt include:

• The temptation to treat a HELOC like a credit card could leave you deeper in debt. “It can be tempting to use any funds “left over” after paying off the debt during the HELOC’s draw period,” Enright said. “Then you’d simply be accruing more debt.”
• Fees and closing costs could outweigh the savings. “Always compare APRs, not just rates,” Anderson cautions.
• Borrowing too much (90%-100%) on a HELOC increases the risk you’ll owe more than your house is worth if the market takes a downturn.
• HELOC interest rates may not be as friendly depending on your credit score, debt-to-income ratio, and loan-to-value ratio.
• HELOCs can come with balloon payments that are due at the end of the designated repayment period.

Alternative Debt Management Options

Financial advisors, and even some lenders, point out that using a HELOC to pay off debt might not be your best option, given that trading unsecured debt for secured debt carries a significant risk.

“It’s really important to determine if the HELOC will help you in the long run,” Erica Sandberg, consumer finance expert at BadCredit, said. “These products can be ideal for deleting an obligation you acquired for an unplanned emergency (as well as to pay for things like home remodels and repairs). However, they are not right if your income can’t support your living costs and you were charging expenses to close the cap.

“In that case you may end up using the cards again but have already depleted your home’s equity. That can put you in a terrible financial position. You’ll have more credit card debt, and the higher payments will eat into your HELOC payments, which will add more stress to your life.”

Alternatives to using a HELOC to pay off debt include debt consolidation loans, debt settlement, balance transfer credit cards and debt management plans.

A debt consolidation loan is another way to restructure higher-interest debt into a single lower-interest monthly payment. These loans typically have 2-5-year repayment terms depending on how much you borrow. A non-profit credit counselor can help you identify the debts to consolidate and, even more importantly, devise a budget that increases your chances of success.

Another strategy is the balance transfer credit card.  Most come with a zero or low interest promotional period that typically lasts 12-18 months. The downside comes into play if you carry debt past the promotional period, or, worse, add to the debt before that grace period ends.

With debt consolidation and balance transfer cards, you are getting relief from higher interest debt, but you are paying off the entirety of your debt. That’s different than debt settlement, which is a negotiated agreement in which lenders agree to accept less than what is owed.

Debt settlement can be a minefield, especially if you attempt to negotiate an agreement on your own with a collection agency. Even if you employ a reputable debt settlement company to negotiate for you, just know the damage to your credit score is significant and “settled” debts remain on your credit report for seven years.

Other options include personal loans through a bank or credit union, help from family and friends and finding a way to add income that can then be applied to your debt.

The foundation of any successful strategy is sound budgeting. Anderson recommends reputable nonprofit credit counseling agencies that can not only help with budgeting but can devise a repayment plan that protects your credit score. Counselors at nonprofit credit agencies that offer Debt Management Plans have agreements with card companies to reduce the interest rate you pay on your debt.

“Combining repayment with strict budgeting and even temporary side jobs can accelerate your debt payoff significantly and can be used with any other debt payoff strategy,” Anderson said.

Paying off debt can be highly stressful. Don’t be afraid to ask for help in meeting a challenge best faced after you’ve fully considered all your options.