From Yahoo Finance: 2025-05-27 13:39:00

Using a Home Equity Line of Credit (HELOC) to pay off debt can be a smart move for some. A HELOC functions like a credit card with a revolving line of credit, giving you access to funds for various purposes, including debt consolidation. Most HELOCs have lower APRs than credit cards, making them a more affordable option for paying off debt. However, to qualify for a HELOC, you need at least 15% to 20% equity in your home and must meet borrower requirements like a good credit score and stable income.

There are two main phases of a HELOC: the draw period and the repayment period. During the draw period, you can access funds as needed to pay off debts, while the repayment period requires you to make payments covering both interest and principal until the balance is paid off. It’s essential to understand the risks associated with HELOCs, as they are secured loans that use your home as collateral, putting you at risk of foreclosure if you can’t repay the debt.

HELOCs offer benefits such as lower interest rates, affordable payments, potential credit score improvement, and streamlined payments. However, there are downsides to consider, like the need for sufficient home equity, potential closing costs, variable interest rates, and the risk of home foreclosure if you default on payments. Before choosing a HELOC, explore other debt consolidation options like home equity loans, cash-out refinancing, personal loans, credit card balance transfers, or credit counseling programs.

Overall, using a HELOC to pay off high-interest debt can be advantageous, but it’s crucial to understand the implications and risks involved. Missing payments on a HELOC can negatively impact your credit score, so it’s essential to manage the debt responsibly. Consider all factors and explore alternative debt consolidation options before making a decision.



Read more at Yahoo Finance: How to use a HELOC to pay off debt (and when it makes sense)