Should You Use A Home Equity Loan or Line of Credit for Debt Consolidation?

When consolidating debt, home equity loans and home equity lines of credit (HELOCs) can help reduce interest rates and simplify repayment. However, the best option depends on your need for flexibility. 

A home equity loan is a better choice if you want a fixed amount and predictable monthly payments. On the other hand, if you need ongoing access to funds and can manage variable interest rates, a HELOC might be more suitable. Understanding your financial goals and repayment preferences can help you choose the right tool for debt consolidation.

Should I use home equity for debt consolidation? 

Tapping into your home equity for debt consolidation could simplify repayment by combining multiple debts into one and save you money with a lower interest rate. You may also get the chance to extend repayment over 20 years or more, giving you breathing room if you’re struggling to afford your monthly debt payments. 

At the same time, borrowing against the equity in your home is risky. Both home equity loans and HELOCs are secured by your home, meaning your lender can demand foreclosure if you default on your home equity debt. If your home value drops, furthermore, you could end up underwater, meaning you owe more on the home than it’s worth. 

If you’re confident about your ability to repay your loan, borrowing against your home value could be a savvy strategy for debt consolidation. However, it’s essential to understand the difference between home equity loans and HELOCs. 

Home equity loans for debt consolidation 

Home equity loans are a type of installment loan with fixed interest rates and predictable monthly payments. You’ll receive a lump sum upfront and pay it back over a set term, which may span five to 30 years. 

Using a home equity loan for debt consolidation could be useful if you know the exact amount you want to consolidate. Since home equity loan rates are fixed, you’ll be able to work this bill into your budget without having to worry about it increasing in the future. 

Unlike with a HELOC, a home equity loan doesn’t let you adjust the amount you borrow. You’ll also have to start paying principal and interest back right away, whereas a HELOC lets you draw funds from the line of credit as needed and postpone principal payments for a certain period of time. 

HELOCs for debt consolidation 

HELOCs are a revolving line of credit you can draw upon as needed. They usually come with variable interest rates, though some lenders offer long-term or temporary fixed rates.  

You can usually make interest-only payments for a period of time, after which you’ll be responsible for paying back both interest and principal. You’ll only pay interest on the amount you withdraw, but your HELOC may come with maintenance fees. 

HELOCs may be a better fit for consolidating debt if you’re looking for flexibility in your borrowing. You can borrow what you need during your HELOC’s draw period and pay it back as you go. You may also appreciate the option of deferring full payments for a while. 

On the flip side, HELOCs can be risky if you’re prone to overborrowing. You risk taking on more debt than you need and facing unaffordable payments when the draw period ends. Plus, the variable rate of a HELOC can make your long-term costs unpredictable and difficult to budget for. 

When considering whether to take out home equity for debt consolidation, since the repayment is a cash outflow over X period of time, I suggest you understand your inflows (earned income, pensions, social security, investment income, rental income, etc.) over the same time period to ensure you can meet the repayment obligation with reasonable confidence. 

In addition to this critical consideration, I recommend taking into account other financial and life goals that you will want to meet and maintaining cash reserves/emergency funds for unexpected life occurrences.

Erin Kinkade, CFP®

Best home equity loans for debt consolidation 

If you’re looking for a fixed-rate loan that lets you consolidate all your debt immediately, a home equity loan may be preferable to a HELOC. Here are our recommendations for the best home equity loans for debt consolidation. 

LendingTree

Best for Comparison Shopping

4.5 _/5

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Why it’s one of the best for debt consolidation 

LendingTree is a marketplace for comparing home equity loans from multiple lenders. For debt consolidation, this platform stands out by providing homeowners with a wide range of loan options tailored to their needs, helping them find competitive interest rates and terms. 

With access to numerous lenders, borrowers can easily compare rates, fees, and loan terms, ensuring they find the best deal for their debt consolidation goals.

• Compare multiple lenders to increase your chances of finding a low rate
• Easy online application process
• Prequalify without a hard credit check, which doesn’t hurt your credit score

• Loan terms and fees can vary widely between lenders
• May receive follow-up marketing from multiple lenders

Rates (APR)	Vary by lender
Loan amounts	$10,000 – $2 million
Repayment terms	Vary by lender

Spring EQ

Best for Accessing 95% of Your Equity

4.1 _/5

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Why it’s one of the best for debt consolidation 

Spring EQ offers one of the highest loan-to-value ratios on the market, allowing borrowers to access up to 95% of their home’s equity. This feature makes it an excellent choice for homeowners looking to consolidate a large amount of debt. With its high LTV limit, Spring EQ allows borrowers to combine their debts into a single, manageable payment while potentially freeing up more equity than other lenders offer.

• Access to up to 95% of your home’s equity, which might be ideal for large debt consolidation
• Flexible loan terms and competitive rates
• Quick processing and funding times

• Higher LTV means higher potential risk if home values decline
• Requires strong credit to qualify for the best rates

Rates (APR)	Starting at 9.50%
Loan amounts	$25,000 – $500,000
Repayment terms	5 – 30 years

Navy Federal Credit Union

Best for Military Members

3.9 _/5

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Why it’s one of the best for debt consolidation 

Navy Federal Credit Union provides tailored financial products for military members and their families, including home equity loans. For debt consolidation, Navy Federal’s home equity loans come with competitive fixed rates, flexible terms, and unique benefits for those who serve. Its strong customer service and commitment to military families make it an appealing option for veterans or active-duty members looking to consolidate debt using their home equity.

• Competitive rates and terms specifically for military members
• No prepayment penalties
• Offers financial counseling for military members
• No closing costs

• Membership is restricted to military families and certain government employees

Rates (APR)	Starting at 7.34%
Loan amounts	$10,000 – $500,000
Repayment terms	5, 10, 15, or 20 years

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Best Home Equity Loans

Best HELOCs for debt consolidation 

If you prefer a more flexible approach to borrowing, consider using a HELOC to consolidate your debt. These HELOC lenders offer competitive rates and quick funding. 

Figure

Best Overall

4.9 _/5

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Why it’s one of the best for debt consolidation 

Figure is an excellent choice for homeowners looking to consolidate debt, particularly because it offers fixed-rate HELOCs to provide borrowers with predictable payments. This is an advantage for those consolidating variable-rate debts like credit cards because you can lock in a rate and know exactly how much you’ll pay each month. 

Figure also has a fast, streamlined online application process, making it easy to secure quick funds for debt consolidation.

• Fixed-rate HELOC offers predictable monthly payments
• Fast approval process, with funding in as little as five days
• No in-person visits required; everything is handled online

• Limited state availability
• May require strong credit for the best rates

Rates (APR)	6.80% – 15.40%
Loan amounts	$20,000 – $400,000
Repayment terms	Draw: 5 years / Repayment: 5, 10, 15, or 20 years

Aven

Best Customer Reviews

4.8 _/5

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Why it’s one of the best for debt consolidation 

Aven stands out for its stellar customer reviews, which highlight the company’s exceptional service and ease of use. Aven offers flexible HELOC options that can be tailored to individual debt consolidation needs, allowing borrowers to manage multiple debts. 

Its transparent fee structure and competitive rates make it a popular choice for those looking to simplify their finances and consolidate high-interest debt into one manageable payment.

• Excellent customer service and satisfaction
• Offers lowest rate guarantee
• Optional debt protection program through Securian

• Short draw period
• First-draw fee of 4.90%
• Only available in 32 states*

Rates (APR)	6.99% – 15.49%
Loan amounts	$5,000 – $400,000
Repayment terms	5, 10, 15, or 30 years

Bethpage

Best for Large HELOCs

4.7 _/5

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Why it’s one of the best for debt consolidation 

Bethpage Federal Credit Union is an excellent match for homeowners looking to consolidate with a HELOC. It offers a unique low fixed introductory rate for the first 12 months, providing significant savings, followed by a variable rate. This structure can help borrowers tackle high-interest debt immediately with a low introductory rate.

Bethpage also offers competitive fixed-rate options, making it easier to manage payments as part of your debt consolidation strategy.

• Low fixed introductory rate for 12 months for creditworthy borrowers
• Option for fixed-rate draws after the introductory period
• Large HELOC limits, perfect for consolidating significant debt

• After the 12-month fixed rate, the HELOC converts to a variable rate, which may increase
• Membership required to access products, though eligibility is broad

Rates (APR)	12-month intro rate of 6.99% for VantageScores of 720 and up; then a variable rate
Loan amounts	$10,000 – $1 million
Repayment terms	Draw: 10 years / Repayment: 20 years

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Best HELOC Lenders and Rates

Should I use home equity for credit card consolidation? 

Using home equity for credit card consolidation can be a smart strategy if it would result in a better interest rate and friendlier repayment terms. You’ll also need to meet a lender’s requirements and avoid over-borrowing against your home. 

Here are some pros and cons to help you determine when using home equity for credit card consolidation would be right for you. 

Pros

• Qualify for a better interest rate

  Credit cards have an average interest rate of 21.76%, according to the Federal Reserve. Home equity and HELOC rates, by contrast, can be less than half that amount. Cutting your rate can save you a significant sum.

• Snag friendlier repayment terms

  With a home equity loan or HELOC, you may be able to extend repayment over 20 to 30 years. Or, you could pay your debt back faster to reduce interest charges.

• Get more manageable monthly payments

  A lower interest rate and longer repayment term could mean more affordable bills from month to month.

Cons

• Risk of over-borrowing

  Whether you take out a home equity loan or HELOC, you put up your home as collateral. That means you risk foreclosure if you take on more debt than you can afford to pay back.

• Must meet lender requirements

  You’ll need a certain amount of equity in your home to qualify for a home equity loan or HELOC. Plus, you’ll have to meet a lender’s requirements for credit, income, and debt-to-income ratio.

• May have to pay closing costs and other fees

  Some lenders charge closing costs for home equity loans and HELOCs, which can add to your borrowing costs. You may also have to pay a fee to keep your HELOC open, as well as late fees if you fall behind on payments.

Alternatives to home equity for debt consolidation

Tapping into your home equity isn’t your only option for debt consolidation. Here are a few alternatives to consider. 

Personal loan 

While home equity loans and HELOCs use your home as collateral, personal loans are typically unsecured and don’t require you to back them with your personal assets. However, you’ll need to meet a lender’s requirements for credit, income, and other factors to qualify. 

Interest rates on a personal loan are typically fixed and currently average 12.33%. You may be able to borrow as much as $200,000, depending on the lender. Repayment terms may span one to seven years or longer. 

Some lenders will send your personal loan funds directly to your creditors if you’re using the personal loan for debt consolidation. Then, you’ll start paying back your personal loan with set monthly payments. 

Personal loans may be preferable to home equity loans if you prefer unsecured debt, want to avoid closing costs, are looking for a fast loan, or can snag a low interest rate. On the downside, you may have to pay an origination fee and could end up with a shorter repayment term and higher interest rate than a home equity product. 

Balance transfer credit card 

Some credit card companies offer 0% APR balance transfers for a period of time. By transferring your balances to a 0% APR card, you can chip away at your balance interest-free for a year or two. 

However, you may have to pay a balance transfer fee that equals 3% to 5% of your loan amount. Plus, you’ll be facing a high interest rate if you’re still carrying a balance once the 0% APR promotional period ends. 

Cash-out refinance 

Similar to a home equity loan or HELOC, a cash-out refinance involves borrowing against your home. However, it means replacing your current mortgage with a new, bigger home loan. You’ll receive the extra amount as cash, which you can put toward your high-interest debt. 

A cash-out refinance can offer competitive rates, but it can be a time-consuming process and come with closing costs. Plus, you run the risk of increasing the rate you currently have on your mortgage. 

As with home equity loans and HELOCs, you risk foreclosure if you take out more debt against your home than you can pay back. 

How we selected the best home equity products for debt consolidation 

Since 2018, LendEDU has evaluated home equity companies to help readers find the best home equity loans and HELOCs. Our latest analysis reviewed 850 data points from 34 lenders and financial institutions, with 25 data points collected from each. This information is gathered from company websites, online applications, public disclosures, customer reviews, and direct communication with company representatives.

These star ratings help us determine which companies are best for different situations. We don’t believe two companies can be the best for the same purpose, so we only show each best-for designation once.

Recap of the best debt consolidation home equity products 

Company	Product	Best for	Rating
Figure	HELOC	Best Overall	4.9
Aven	HELOC	Best Customer Reviews	4.8
Bethpage FCU	HELOC	Best Credit Union	4.7
LendingTree	Home Equity Loan	Best for Comparison Shopping	4.5
Spring EQ	Home Equity Loan	Best for Accessing 95% of Your Equity	4.1
Navy Federal	Home Equity Loan	Best for Military Members	3.9