Should you use a home equity loan to pay off your debts?

Moving credit card debt into a home equity loan changes what kind of debt it is. Credit card debt is unsecured: miss payments and the issuer can sue you or send you to collections, but it can’t take your house. A home equity loan or HELOC is secured by your home, so missed payments can lead to foreclosure. That’s the trade you’re making, and it only pays off under specific conditions. 

The upside of converting your higher-interest debt into a home equity loan? Home equity rates average under 8%, whereas many credit cards are close to 20%. That gap can be real money back in your pocket — but only if you qualify for a rate near the average, you’ve already fixed whatever caused the balances, and you understand what’s now on the line if you fall behind.

Is using a home equity loan to pay off debt right for you?

A home equity loan or HELOC is likely a fit if you have a credit score of 700 or higher, a debt-to-income ratio — all monthly debt payments divided by gross monthly income — of 43% or less after adding the new payment, at least 15% to 20% equity left in your home once you borrow, and you’ve already changed the spending habit that created the balances.

But if your credit is weak or you carry large card balances, you probably won’t qualify for the lowest rates, making the move less worthwhile. And if you’re not confident you can avoid running your credit cards back up, a home equity loan could leave you juggling two payments instead of one.

In deciding whether it’s best to tap into your home’s equity to pay off other debts, keep in mind you could be at risk of foreclosure if you find yourself unable to make the loan payments on time.

How much can you save by consolidating with home equity?

Here’s what $15,000 in credit card debt actually costs under two paths: rolling it into a 15-year home equity loan at 8% (close to today’s average rate), or paying only the card’s minimum each month at 20%.

That’s roughly $13,500 less in interest and a payoff nearly 17 years sooner. A few things to know about how this example is built:

• It assumes the full $15,000 stays on the card with no new charges, and a minimum payment of 1% of the balance plus interest — a common formula, but check your card’s actual terms since they vary.
• It doesn’t include the home equity loan’s closing costs, typically 2% to 5% of the loan amount ($300 to $750 here) — factor those in before you decide.
• The loan’s payment is fixed and lower than the card’s starting minimum from month one. The card’s minimum keeps shrinking as the balance does, which is exactly what stretches its payoff to nearly two decades longer.

The trade-off: Trading unsecured debt for secured debt

Consolidating credit card debt with a home equity loan changes the legal nature of the debt. Credit cards are unsecured: If you default, the issuer can pursue collections or sue, but it can’t seize your property. A home equity loan is secured by your house, so missed payments can lead to foreclosure. Selling your home doesn’t erase the debt — you must repay the home equity loan in full at closing, just like a primary mortgage.

A home equity loan can get you a lower rate, saving you money in interest and reducing the amount you pay overall. But missing a payment doesn’t just hurt your credit — it can put your home on the line. That’s the detail most likely to change your decision, and the one most often left out of the pitch.

Pros and cons of using home equity loans or HELOCs for debt consolidation

“If you’re carrying large credit card balances, that can signal to lenders that you are a high-risk borrower,” says Bell. “While you can still get a home equity loan if your credit card debt is substantial, lenders will compensate for that added risk by giving you a higher rate. If you fall into this group, it makes sense to wait until you get your debt levels down before applying.”

Which debts make sense to consolidate with a home equity loan?

Not all debt is a good fit for a home equity loan. Here’s how the most common types stack up:

Whatever debt you’re consolidating, compare several home equity lenders’ offerings — not just rates, but fees and closing costs as well. 

A few home equity borrowing scenarios can have particularly severe consequences and should be avoided:

• Vacations or luxury purchases. Borrowing to cover discretionary spending signals your spending has outpaced your income, and you’ll be repaying it long after the splurge.
• Investments. Borrowing to invest adds risk on top of risk, especially at current rates. As a rule, use savings or income — such as a 401(k) — instead.
• Near retirement. Tapping equity late in life shrinks the ownership stake you may be counting on for retirement income, so it’s worth weighing that trade-off carefully.

Home equity loan or a HELOC: Which is better for settling debts?

Both HELOCs and home equity loans can work for settling debts. But for credit card debt, a home equity loan may have a slight edge.

You can calculate the exact sum of your credit card balances, and paying them off quickly should be a high priority — those balances compound every month at close to 20%. That’s a precise sum you want to settle as soon as possible, which is tailor-made for a home equity loan’s single lump payment. You’ll start repaying principal and interest right away, but it’s bound to be lower than what you’re paying across the cards.

HELOCs work better when you’re not sure of the exact amount you’ll need, or for expenses incurred over time. But in this case, there’s no advantage to drawing funds out gradually, especially when you consider that many HELOCs carry annual fees.

Shop multiple lenders before you borrow

Shop around — don’t accept the first offer you get. Bankrate’s Hidden Homeownership Tax research found that 87% of mortgage borrowers overpaid on their loans in 2025 — not because better rates weren’t available, but because most borrowers never saw them.

While that data is specific to primary mortgages, the same dynamic applies to home equity borrowing. Rates, fees and terms vary meaningfully among lenders, and the first quote you get isn’t necessarily the best one available to you. Getting quotes from at least three home equity lenders costs you little, and the savings can be significant.

Other ways to consolidate debt

Home equity loans aren’t your only option for debt consolidation. Before you put your home up as collateral, compare the alternatives.

• Balance transfer credit cards: If most of your debt is on credit cards, consider transferring your balances to a new card with an extended 0% APR introductory period. Card issuers often cap transfers around $10,000, and once the promo period ends, the rate reverts to a standard card rate — near the 20% average — so you’re back where you started unless you pay off the balance by then.
• Cash-out refinance: This replaces your entire mortgage with a larger one and hands you the difference in cash — which means you’re increasing your total mortgage debt and putting your house on the line for what may have started as a credit card balance. It only makes sense if the new rate is at or below your current mortgage rate; otherwise you’re paying more on your whole loan balance just to consolidate a smaller debt.
• Debt consolidation loans: Some personal loan lenders offer rates that can rival home equity rates if you have excellent credit, but terms tend to be much shorter — often seven years or less — and the lowest rates usually require a repayment term of three years or shorter.

Bottom line

Using home equity for debt consolidation “can be a smart move for borrowers with a large amount of high-interest credit card debt because the home equity loans usually have lower rates than credit cards,” Bell says. “That can save you some big money in the long run by reducing your monthly payments and the amount of interest you pay over time.”

That said, consolidating won’t solve the underlying problem. “Remember that you are simply shifting one form of debt for another,” Bell says. You still have to pay off everything you owe; it’ll just cost less overall, as long as you don’t let new balances pile up behind it.

Frequently asked questions

• Who is eligible for a home equity loan?

  Beyond being a homeowner, the requirements for a home equity loan vary by lender, but you’ll generally need to own at least 15% to 20% of your home outright, have a credit score of 620 or higher, and a debt-to-income ratio of 43% or lower. If you’re planning to use the loan for debt consolidation, you should also have a specific plan to stop the spending that created the balances. The decision ultimately comes down to whether you’re confident you can make on-time payments — because your home is what secures the loan.

• Can I lose my home if I use a HELOC to pay off credit cards?

  Yes. Unlike credit card debt, which is unsecured, a HELOC is backed by your home — fall behind on payments and the lender can foreclose. You’re trading a lower interest rate for a higher-stakes consequence if you can’t keep up with payments.

• How much of my home’s equity can I borrow?

  That depends on your credit score, your existing mortgage balance and the lender’s criteria. Most lenders cap tappable equity at 80% of your home’s appraised value. With excellent credit — generally 740 or higher — some credit unions and online lenders will go to 90% or 95%.