Most U.S. homeowners who take out a Home Equity Line of Credit, or HELOC, use the money to renovate their homes, often adding square footage or refurbishing dated kitchens and bathrooms to improve a home’s value.
But a growing percentage are turning to HELOCs to consolidate high-interest debt and lower their payments. The shift comes as homeowners hold an estimated $11 trillion in home equity nationwide, and HELOC interest rates remain below those on traditional credit cards.
“It can make sense if you’re doing it to basically improve your financial situation,” says Bankrate analyst Linda Bell.
But she warns there are serious risks if you miss a payment or fall behind.
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“If you don’t pay that loan, you’re at risk of losing your home to foreclosure,” Bell cautions.
The percentage of homeowners using HELOCs to consolidate debt rose from 25% in 2022 to 39% in 2024, according to data from the Mortgage Bankers Association.
Homeowners tapped into $47 billion of their collective equity during the first quarter of this year, according to data from Intercontinental Exchange. It marks the highest first-quarter borrowing since 2021.
Bankrate says the average HELOC interest rate was 7.4% in June, significantly lower than the nearly 20% average for credit cards. The difference can lead to substantial savings; for example, someone with $30,000 in credit card debt could save $180 per month and more than $10,000 in interest over five years by using a HELOC to repay the debt.
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While effective, experts warn it’s not for everybody. Unlike traditional fixed-mortgage or home equity loans, HELOC interest rates are adjustable, meaning payments can fluctuate over time.
“I would say that the best thing is to make sure that you’re working with a reputable lender,” Bell told Boston 25 News.
She also says HELOCs should not be used for big-ticket purchases.
“If you are thinking about tapping into your home’s value for a trip to Bali, or maybe your daughter’s wedding, I would say those aren’t necessarily the most prudent ways to use your home equity,” Bell said.
Another option for anyone – homeowner or renter – is a 0% balance-transfer credit card. Many offer 1-2 years of no-interest payments, provided the required minimum payment is made on time each month.
There are also money management non-profits that can help you consolidate your debt, lower your payments, and create a manageable repayment plan.
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