Does a HELOC for debt consolidation make sense now? Here's what to know.
The persistent inflation issues that have been looming and the rising costs of goods and services that have come with it have driven many Americans toward credit cards recently. In fact, the total credit card debt nationwide is now sitting at over $1.2 trillion — a $45 billion jump from just one year earlier.
If you're a homeowner and have racked up credit card debt of your own, you might be able to tackle it by tapping your home equity. In many cases, options like home equity lines of credit (HELOCs) offer significantly lower rates than credit cards, allowing you to use your equity to pay off credit card balances with lower monthly payments and fewer long-term interest costs.
Still, the strategy isn't right for everyone — or every situation. Are you thinking of using a HELOC to pay off debts right now? Here's when it might make sense (and when it wouldn't).
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Why a HELOC for debt consolidation makes sense now
From an interest rate standpoint, using a home equity line of credit to consolidate debt can be a smart choice right now, as HELOC rates tend to be quite a bit lower than most other financial products.
Credit cards, for instance, are carrying average rates above 22% and personal loan interest rates are averaging over 12%. The typical HELOC, on the other hand, carried about an 8% interest rate in March 2025.
"Most people are going to save a substantial amount of money," says Dre Torres, a loan officer at Cornerstone First Mortgage.
There are other benefits to consolidating debts with a HELOC, too. For one, you get a longer repayment term compared to other options. For example, most personal loans have very short terms (a few years, at most), and if you don't pay off your credit cards quickly, the debt can easily snowball.
"Most people at some time in their adult life end up with a pile of debt that just seems to have appeared and at some point, you have to stop the snowball effect of fighting higher interest loans or credit cards," says Steve Wilbourn, a financial advisor at True North Advisors. "If you are at the point where you are not going to be able to pay the credit card bill, a HELOC can give you more time to spread out the payments and often a much lower interest rate which equals a lower payment."
Consolidating your debts will also streamline your payments. Instead of paying several debts down each month, you'll have just a single HELOC payment to make — and often, it will be interest-only payments for the first 10 years of the loan, making them even more manageable.
"Any time you are going to pay off debt and roll it into a loan that has one payment, that will put you in a better financial position," Torres says. "It can help with being cash flow positive every month, being able to apply that savings to other debt to pay down, or being able to take that monthly savings and float it into the market so that it becomes an asset to you."
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Why a HELOC for debt consolidation doesn't make sense now
Using a HELOC to consolidate debt likely wouldn't be a good idea if your credit score is particularly low, as it would likely mean you'd get a higher interest rate on your HELOC — eating into the potential savings the move would have to offer.
It would also not be wise if you don't have much equity in your home.
"It may be ill-advised to use a HELOC if it takes all of your home's equity off the table, especially if you haven't owned your home for very long," Wilbourn says. "There is always the chance of your home losing value and you are now upside down on your mortgage."
When you're upside down on your mortgage, you owe more than the home is worth. And if you find yourself needing to sell? The proceeds won't be enough to pay off your loan, leaving you to make up the difference out of pocket.
Taking out a HELOC to pay off debt is also a bad idea if you don't have the funds to actively pay down the balance, as it could result in more long-term debt. It could also mean higher rates the longer you keep the line open.
"Right now, with rates still relatively high and potentially volatile, a variable-rate HELOC can be risky since your payments can rise if rates go up," says Stephan Shipe, a flat-fee financial advisor and owner of Scholar Financial Advising. "It's better suited if you plan to pay it off quickly or if you expect rates to drop. "
If your spending habits aren't in check, a HELOC isn't going to be much help either. It could even mean losing your home to foreclosure if you can't make your payments.
"It's a major red flag if you are consolidating debt into a HELOC without addressing the root problem that caused the initial build-up in debt," Shipe says. "Without addressing the initial issue, you risk losing your home and also freeing up credit card limits to build up the problem again, creating an endless debt cycle."
The bottom line
Debt consolidation isn't your only option if you're dealing with debt. Debt settlement, debt negotiation and other debt relief services can help, too. And if you're not sure what the right move is, talk to a financial professional. They can walk you through all your options, as well as their benefits and costs.
