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Using Home Equity to Consolidate Debt: Evaluating Your Equity, Pros, Cons & Alternatives

Lauren Brown Updated: August 29, 2023 • 4 min read
home equity loans

As a homeowner, you may have the option to use home equity to pay off debt. Many Americans follow a home equity loan debt consolidation strategy where they combine multiple financial obligations together under a home equity loan. These loans allow you to borrow a lump sum using your property as collateral and, in turn, benefit from a more manageable payment structure and potentially lower interest rates.

How Much Home Equity Do You Have?

The first step to using home equity to pay off debt is to determine the amount of equity you have in your home. To calculate your home equity, you need to consider your current home value and how much you owe on your mortgage. This will show you the loan amount you can borrow to pay off your debt.

Should I Consolidate Debt With Home Equity Loans?

If you've built up equity in your property and consistently earn a stable income, coupled with a solid credit score, yet find yourself burdened with multiple debts, a home equity loan could be an advantageous solution to consolidate and manage those debts more efficiently.

Pros and Cons of Using Home Equity to Consolidate Debt

If you want to use home equity to pay off debt, weighing the benefits and drawbacks is essential:


  • Potential for lower interest rates: Home equity loans often have lower interest rates than other types of loans, especially credit cards. In the long run, a lower interest rate can save you money.
  • Single payment: Consolidating various debts using home equity may simplify your finances, allowing you to make only one payment.
  • Potential tax benefits: Interest paid on home equity loans may be tax-deductible in some situations. This is not always the case, so consider consulting with a tax professional for specific guidance.


  • Risk to your home: Since home equity loans use your property as collateral to secure the loan, failure to make payments may put your home at risk of foreclosure.
  • Potential costs and fees: Home equity loans can come with appraisal fees, closing costs, application fees, and other expenses.
  • Your home could lose value: Your home’s value is not guaranteed, making it possible that its worth could fall. If this happens while you have a home equity loan, your debt may be greater than the value of your home.

Do I Need Good Credit for a Home Equity Loan?

While obtaining a home equity loan with a wide range of credit scores is possible, having good credit can enhance your options. A higher credit score may also provide more favorable interest rates and borrowing terms.

A good credit score depends on the lender, but you need a minimum credit score of 620 to qualify for a home equity loan. If you have a credit score on the lower end, you may be subject to a higher interest rate or receive terms that are not as flexible.

A credit score is just one of the factors lenders consider when assessing your eligibility. Other factors like your income, debt-to-equity ratio, and the amount of equity in your home will also play significant roles in determining whether you can obtain a home equity loan.

Other Ways to Consolidate Debt

If you find yourself looking at debt management programs, there are several consolidation strategies to consider:

  • Debt consolidation loan: This type of loan can combine multiple debts into one, often with more attractive interest rates and payment terms. Unlike a home equity loan, it does not require using your home as collateral.
  • Home equity loan: A home equity loan allows you to borrow against your home and access a lump sum to consolidate your debts. It typically offers lower interest rates than a debt consolidation loan, but it can put your home at risk if you default on your payments.
  • Home equity line of credit (HELOC): You can use a HELOC to pay off debt by accessing funds secured against your home. A HELOC operates like a credit card, allowing you to draw and repay funds up to a set limit.

Each debt consolidation method comes with considerations. You can consult a financial expert to get specific advice on which option may be best for your situation.


Using a home equity loan to pay off debt can be a helpful strategy for homeowners seeking to consolidate their financial obligations. These loans can offer lower interest rates and a more streamlined payment structure. If you are considering using a home equity loan for debt consolidation, it is vital to understand the risks, including the possibility of foreclosure. Weighing both the advantages and risks of home equity loans can help you make the best decision for your finances.



Can I get a HELOC with a lot of debt?

A home equity line of credit may be available even with significant debt, considered by lenders.

Can I get equity without refinancing?

Yes, this allows you to borrow against the equity in your home without altering your existing mortgage.

What can you not do with a home equity loan?

A home equity loan is tied to your property, meaning you can not miss a loan payment without jeopardizing your home. Failure to repay your loan can result in the loss of your property due to foreclosure.

How many years is a home equity loan?

Home equity loans usually have a term ranging from 1 to 30 years. The specific length will vary based on the lender.

What is the minimum credit score for HELOC?

The minimum credit score for a HELOC will vary by lender. Often a score of around 620 is the minimum to get a HELOC to pay off debt.

How long does it take to get a HELOC?

Obtaining a HELOC or home equity loan to pay off debt can take weeks to months. The time frame depends on the lender's process and the complexity of your financial situation.

Written by Lauren Brown linkedin-icon

Lauren has over a decade of experience in wealth management and financial planning. She is a CFA charterholder and holds a Bachelor's degree in Finance. Lauren has worked with several asset management firms, offering wealth advisory and portfolio management services to high-net-worth clients.