Home Equity HELOCs Should You Pay Off Debts With a HELOC or Home Equity Loan? Experts Weigh In 2 people contribute to this content Written by Catherine Collins Written by Catherine Collins Expertise: Budgeting, mortgages, home equity, credit, debt, investing, personal loans, small business, entrepreneurship, student loans Catherine Collins is a personal finance writer and author with more than 10 years of experience writing for top personal finance publications. As a mother to boy/girl twins, she is passionate about helping women and children learn about money and entrepreneurship. Cat is also the co-host of the Five Year You podcast. Learn more about Catherine Collins Edited by Amanda Hankel Edited by Amanda Hankel Expertise: Writing, editing, digital publishing Amanda Hankel is a managing editor at LendEDU. She has more than seven years of experience covering various finance-related topics and has worked for more than 15 years overall in writing, editing, and publishing. Learn more about Amanda Hankel Written by Catherine Collins Written by Catherine Collins Expertise: Budgeting, mortgages, home equity, credit, debt, investing, personal loans, small business, entrepreneurship, student loans Catherine Collins is a personal finance writer and author with more than 10 years of experience writing for top personal finance publications. As a mother to boy/girl twins, she is passionate about helping women and children learn about money and entrepreneurship. Cat is also the co-host of the Five Year You podcast. Learn more about Catherine Collins Edited by Amanda Hankel Edited by Amanda Hankel Expertise: Writing, editing, digital publishing Amanda Hankel is a managing editor at LendEDU. She has more than seven years of experience covering various finance-related topics and has worked for more than 15 years overall in writing, editing, and publishing. Learn more about Amanda Hankel show more Jan 14, 2026 If you’re a homeowner with credit card debt or student loan debt, you might be wondering if it’s a good idea to use a home equity loan or a home equity line of credit (HELOC) to consolidate it. The truth is, there are pros and cons to this payoff strategy. So, it’s a good idea to learn a little about both products and some alternative methods to see which might be best for you. In this article, we’ll share expert advice about using HELOCs and home equity loans to pay off debt. We’ll also outline the benefits and drawbacks, situations where these loans might make sense, and times when they definitely don’t. By the time you finish reading, you’ll know which route is best for you. Table of Contents Is it a good idea to use a HELOC or home equity loan to pay off debt? Pros Lower interest rates One payment Faster payoff Cons You could lose your home Variable rates Won’t fix spending habits Which is better for paying off debt: a HELOC or a home equity loan? Fund disbursement Interest rate Payment structure Cost and fees Eligibility requirements Potential for future debt When it may make sense to use home equity to pay off debt When it doesn’t make sense to use home equity to pay off debt How to apply for a HELOC or home equity loan in 7 steps Alternative ways to pay off debt Budgeting Start a side hustle Take out a personal loan Home equity investment Is it a good idea to use a HELOC or home equity loan to pay off debt? Most of the time, a HELOC or home equity loan will have a lower interest rate than a credit card. However, there’s more to consider than your interest rate. For example, according to financial expert and best-selling author Suze Orman, there’s a big difference between unsecured debt, like credit cards, and secured debt, such as a HELOC or home equity loan. In one of Orman’s recent podcast episodes, a listener asked if she should pay off debt with a HELOC, and Orman said, “Never transfer unsecured debt … into secured debt” because it can put her home at risk. That’s the main drawback of this type of financing, but here is the full picture of pros and cons to consider. Pros Lower interest rates As mentioned, a significant advantage of using a HELOC or home equity loan to pay off debt is that you can consolidate high-interest debt into a single, lower-cost payment. This can help you pay off debt faster. One payment If you use a home equity loan or a home equity line of credit to pay off debt, you could pay off multiple debts and roll them into one. This can streamline your monthly cash flow and make budgeting easier. Faster payoff Home equity loans and HELOCs have fixed terms you can use. You can choose a shorter term, which can motivate you to pay off the debt faster. Contrast that to credit cards, which you can use for decades, only paying the minimum. Cons You could lose your home The most crucial downside of using a home equity loan or HELOC to pay off your debt is that you are converting an unsecured loan into a secured one. Because your house is collateral for the loan, your lender can repossess it if you don’t make your payments. Variable rates Home equity loans usually have fixed interest rates, but some HELOCs have variable interest rates. This can make your payment and your interest costs unpredictable. Won’t fix spending habits If you take out a home equity loan or HELOC without addressing the root issues that created your debt, you may end up racking up more debt, perpetuating the cycle. Which is better for paying off debt: a HELOC or a home equity loan? Unfortunately, there is no single answer that works for everyone. Some people might benefit from getting a HELOC, while others might prefer a home equity loan. That said, if you’re trying to decide which product is better for debt payoff, here are a few things to consider. Fund disbursement Usually, home equity loans are lump-sum loans, and HELOCs are lines of credit. However, some HELOC companies, such as Figure and Aven, require a full draw on the line of credit. If you want to pay off your debt all at once, getting a lump sum is likely preferable to a line of credit. Interest rate As mentioned, some HELOCs have variable interest rates, which can change your payment from month to month. Home equity loans, on the other hand, have fixed interest rates, which means your payment will be the same every month, regardless of market fluctuations. Payment structure With a HELOC, some lenders allow borrowers to make interest-only payments during the draw period, which can offer some financial relief to many people. However, that also means that when the draw period is over, usually after 10 years, borrowers might be surprised by how much the payments are. Home equity loans, on the other hand, have the same monthly payment for a set term. Cost and fees Home equity loans and HELOCs will have closing costs and other fees, such as origination fees and appraisal fees. This can add to the cost of your loan and increase your debt even if you’ve lowered your interest rate. Eligibility requirements Home equity loans typically have strict eligibility requirements, including a good credit score, sufficient equity, proof of employment, and a low debt-to-income ratio. The process for applying for one of these loans resembles that of getting your first mortgage. Ultimately, borrowers need to be in good financial shape to qualify. Potential for future debt If you use one of these products to pay off debt, there’s a possibility you could create even more debt, depending on your habits. Ramit Sethi, a financial expert and best-selling author, says that getting a HELOC “would be like giving a shopping addict a credit card with a $100,000 limit.” He strongly advises against taking out a HELOC if you struggle with spending. When it may make sense to use home equity to pay off debt Here are some situations when a home equity loan or home equity line of credit could help you pay off debt. You have a stable income, an emergency fund in place, and are not worried about making payments on time. You have high-interest debt, and paying the minimum isn’t making a dent. You have a pay-off plan and are disciplined with your spending. When it doesn’t make sense to use home equity to pay off debt You recently lost a job. You don’t have an emergency fund. You’re close to the max LTV ratio lenders suggest. You struggle with spending. How to apply for a HELOC or home equity loan in 7 steps If you decide you want to move forward with a HELOC or home equity loan, here are the steps to take. Do the math: Before you apply or research lenders, make sure that you have enough equity in your home to qualify for one of these products. Usually, you need at least 20% equity in your home. Find a lender: The next step is to find a lender, preferably one that has low fees and excellent customer service. According to our research, Aven currently has the best customer reviews for a HELOC. Here is a list of the best home equity loans and the best HELOC lenders. Get prequalified: The next step is to complete the prequalification process. Getting prequalified doesn’t mean you’re approved for the loan, but it gives you an idea of whether you’re likely to be approved. Do this with three to five lenders. Compare fees and products: Compare lenders that preapproved you. Look at the total cost, terms, and eligibility requirements. Formally apply: Once you choose a lender, fill out an official application. Prepare your documents in advance to speed up the process. You’ll likely need verification documents and income documents similar to those required for a mortgage application. Sign the agreement: Once it’s ready, read it through the documents carefully and sign on the dotted line if you agree to the terms. Stick to the payoff plan: Once your money is dispersed, use it to pay off your debt. Then, stick to your payoff plan so you can become debt-free sooner rather than later. Alternative ways to pay off debt As mentioned previously, getting a home equity loan or a HELOC is not the only way to pay off debt. Here are some other options. Budgeting Rachel Cruze, a financial expert, author, and Ramsey personality, said in a recent YouTube video that home equity loans and HELOCs are like “using your home’s value as an ATM … robbing your future self and going backwards with your net worth.” Instead, she recommends using the debt snowball method to pay off debt. Start a side hustle Starting a side business, whether you’re reselling thrifted items or cutting grass, is a great way to earn extra money to pay off debt, without making your debt balances worse. Take out a personal loan Even though personal loans typically have higher interest rates than HELOCs or home equity loans, these loans are unsecured. That means if you aren’t able to make payments for whatever reason, the lender can’t foreclose on your house. Home equity investment A home equity investment is another type of home equity product that allows you to sell a percentage of your home’s future value in exchange for a lump sum. HEIs typically have lower eligibility requirements than HELOCs and home equity loans, but they have drawbacks you should be aware of, too. Article sources At LendEDU, our writers and editors rely on primary sources, such as government data and websites, industry reports and whitepapers, and interviews with experts and company representatives. We also reference reputable company websites and research from established publishers. This approach allows us to produce content that is accurate, unbiased, and supported by reliable evidence. Read more about our editorial standards. Suze Orman, Ask KT & Suze Anything: Should I Use a HELOC to Pay Off My Debt? I Will Teach You To Be Rich, HELOC vs. Home Equity Loan: The Real Numbers Banks Don’t Want You to See Rachel Cruze, The Financial Trend That Is Robbing You Blind About our contributors Written by Catherine Collins Catherine Collins is a personal finance writer and author with more than 10 years of experience writing for top personal finance publications. As a mother to boy/girl twins, she is passionate about helping women and children learn about money and entrepreneurship. Cat is also the co-host of the Five Year You podcast. Edited by Amanda Hankel Amanda Hankel is a managing editor at LendEDU. She has more than seven years of experience covering various finance-related topics and has worked for more than 15 years overall in writing, editing, and publishing.