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A woman looks out the window of her home while contemplating how to use a HELOC for debt consolidation.

Using a HELOC for Debt Consolidation

Credit card debt is easy to rack up but hard to pay off. If you’re struggling to pay down accumulated debt from credit cards or other forms of high-interest borrowing, a home equity line of credit can offer a smart, affordable way out.

Life Line: How to Use a Home Equity Line of Credit  for Debt Consolidation

If you’ve been a bit too eager to use your credit card in the past, finding the money you need each month to keep up with the rapidly accumulating interest on your account can make it difficult to save for your long-term financial goals.

Debt consolidation offers a way out of this short-term interest trap by allowing you to pay off high-interest credit card debt, installment plans, or payday loans using a single lower-interest, longer-term loan. 

If you own your home, you can apply for a home equity line of credit (HELOC) which allows you to use the equity you hold in the property to borrow the money you need to consolidate your debts at a lower rate. That can mean you’ll pay less each month and pay off your loan sooner than with other forms of long-term borrowing.

Why a HELOC?

The core element of a HELOC is equity, which is the difference between the value of your property and the balance on your mortgage. You earn equity as you make mortgage payments AND as the value of your property increases.

A HELOC lets you borrow against your equity while continuing to live in your home and pay down your mortgage. However, unlike a home equity loan, a HELOC works more like a credit card, allowing you to borrow money as you need it and repay as you are able—but at a much lower rate than you’ll get on any card.

For example, you can use a HELOC to consolidate debts by borrowing the money you need to pay off your credit cards, personal loans, or installment plans. Provided you are committed to paying off your line of credit within the agreed 5-20 year “draw” period, you’ll be able to swap juggling multiple high–interest debts for a single monthly payment.

How It Works

You can open a HELOC at many banks or credit unions, including NextMark Credit Union. After becoming a member of the credit union, you can apply for a HELOC either in person or online. Here’s how the process typically works: 

During the Application Process 

You’ll need to provide information about your mortgage, as well as about your income sources and other liabilities. You’ll usually have to pay for an appraisal as well as various processing fees. These can be paid upfront or rolled into payments you will make over the life of your loan.

Your lender will compare how much you want to borrow against the equity you hold in your house. Most lenders require you to have at least 15-20% equity in your home, and will typically let you borrow up to 85% perhaps even 100% of this (your loan-to-value ratio) depending on your credit score.

Your lender will offer you a HELOC at a variable interest rate for the “draw” period. You should work with your lender to calculate how much you can afford to repay each month to eliminate your debt before your HELOC resets to the higher rate.

Once Approved 

You’ll be able to withdraw money from your HELOC as you need it. You can use this money to repay your high-interest debts and cover other costs, provided you have budgeted for these.

You’ll repay your consolidated debt in regular monthly payments. Ideally, you will eliminate your debt within your HELOC’s low-interest “draw” window.

While opening a HELOC and consolidating debt may initially lower your credit score, this will improve over time as you make consistent payments on your lower-interest debt.

When to Use a HELOC for Debt Consolidation

A HELOC is a good choice if you want to pay off large but not excessive high-interest debt over time. How much is that? It depends on:

  • How much equity you have in your home
  • How much of your mortgage is still outstanding
  • What other expenses you have
  • Fees and closing costs that are required to open your HELOC

These costs can make it uneconomical to use a HELOC to consolidate smaller debts. Bear in mind as well that interest rates on your HELOC are variable, so your payments could increase or decrease in line with market conditions.

Most importantly, realize that a HELOC is secured by your home. That means if you’re unable to make payments on both your HELOC and your remaining mortgage balance, your home can be seized to help pay off what you owe.

For these reasons, you should only use a HELOC to consolidate debt if you are committed to:

  • Making consistent, on-time payments at the required level
  • Avoiding using your HELOC for other expenses
  • Controlling your future spending with an effective budget

HELOC Pros and Cons

Is a HELOC a smart choice for your debt consolidation situation? Let’s take a closer look at the advantages and drawbacks associated with this borrowing option.

Using a HELOC for Debt Consolidation: Pros vs. Cons




Access to a larger amount of credit so you can consolidate your loans


Fees and closing costs may make consolidation uneconomical


Make one monthly payment rather than juggling multiple debts


Variable interest rates can make it hard to predict future payments


Flexible initial payments, including interest-only payments


Easy terms make it tempting to skimp on payments or take on more debt


Can be used for other expenses provided you can afford payments


You risk losing your home if you miss HELOC and mortgage payments


Paying off long-term debt can improve your credit score over time


HELOC Alternatives

HELOCs can provide access to large amounts of credit with easy payment terms, but they’re not for everybody. Here are some popular alternative ways to manage debt consolidation:

Personal Loans

A popular choice for debt consolidation, personal loans offer a fixed interest rate for predictable monthly payments and are generally unsecured. This is a good choice if you don’t own a home or don’t want to use your home to secure a cheaper loan.

Balance Transfer Cards

For smaller amounts of debt, moving all your balances onto a single credit card that offers a low or 0% APR can help you get ahead on payments. Look for cards with little or no transfer fees. Some cards also offer a bonus if you charge a certain amount within a set introductory period.

Home Equity Loans

Home equity loans are secured against your home in the same way as HELOCs but offer a one-time payout that you repay at a fixed rate. Less flexible than HELOCs, they offer a single, predictable bill without the temptation to charge additional expenses or skimp on payments.

Cash-Out Refinancing

Cash-out refinancing turns your equity into actual cash in your pocket by refinancing your home for more than you owe on your original mortgage. You’ll need to start from scratch building equity in your home with payments on your new mortgage, but you get a lump sum payment you can use to eliminate debt once and for all. 

Get More Out of Your Home With NextMark

Ready to find out more about how your home equity can help you beat short-term high-interest debt and put you on the road to financial stability? NextMark CU is your local home equity solutions provider.

Our flexible HELOCs allow our members to access the credit they need to manage debt better and build toward their dreams, with:

  • Terms up to 40 years
  • Draw periods of up to 20 years
  • Finance up to 100% of your equity
  • Competitive rates
  • No prepayment penalties

Contact us today or click below to find out more about our flexible, affordable home equity products.


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