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How a HELOC Can Help You Consolidate Your Debt

Feeling weighed down by high-interest debts? A Home Equity Line of Credit (HELOC) could be your solution. By utilizing your home’s equity, you can combine various debts into one manageable credit line. This method might lower both your interest rate and monthly payments, giving you the relief and clarity you need. In this guide, we’ll explore how HELOCs work, their benefits and drawbacks, and how to use them responsibly for debt consolidation. You’ll also learn how they compare to other options, helping you decide if a home equity loan for debt consolidation suits you.

Key Takeaways

  • A HELOC can lower monthly payments if its rates and fees are less than what you currently pay on credit cards and personal loans.
  • It offers benefits like lower interest, flexible borrowing, and the ability to convert to fixed-rate with some lenders.
  • However, be aware of variable rates and remember your home secures the loan, making consistent payments and a payoff plan crucial.

What Is a HELOC?

Unlike a fixed home equity loan, most HELOCs have variable rates linked to benchmarks like the prime rate. Interest-only payments during the draw period can help with cash flow, but plan to reduce the principal steadily to avoid extending debt.

Eligibility often depends on your credit score, debt-to-income ratio, and home value. The application process includes documentation, a home appraisal, and credit checks. Watch for fees like appraisal, origination, and closing costs.

Benefits of Using a HELOC for Debt Consolidation

  • Lower interest rates: HELOCs often have lower rates than credit cards, helping you pay off debt faster. According to the Federal Reserve, 22.83% is the average annual percentage rate for credit cards as of August 2025.
  • Flexible borrowing and repayment: You can borrow only what you need and adjust payments to fit your budget.
  • Streamlined payments: Combine multiple debts into one HELOC account, simplifying your payments.

Some homeowners may prefer a fixed home equity loan for predictable payments. Comparing HELOCs with other loans helps you choose the best option for your needs.

Drawbacks of Using a HELOC for Debt Consolidation

  • Variable interest rates: Rates may increase over time, raising your payments. For fixed rates, consider a home equity loan.
  • Your home secures the loan: Missing payments can have serious consequences. Ensure that HELOC payments are a priority in your budget.
  • Upfront and ongoing costs: Appraisal, origination, and closing fees can impact savings. Calculate all costs before proceeding. Use our calculator here.

Knowing the pros and cons helps you make an informed decision and avoid surprises.

How to Use a HELOC for Debt Consolidation Effectively

  • Identify target debts: List your debts by balance, APR, and payment. Use the snowball or avalanche method for a debt repayment strategy.
  • Calculate savings: Compare your current interest rate with the HELOC rate, considering all fees.
  • Set a borrowing plan: Only draw what you need. If available, use direct payments to creditors to avoid delays.
  • Automate payments: Set automatic transfers to your HELOC
  • Choose a repayment strategy: Convert to fixed-rate segments if possible or pay extra principal monthly.
  • Monitor rates and terms: Stay informed about rate changes and consider refinancing if necessary. Check Prime.
  • Consider alternatives: If limited equity or a preference for fixed payments is a concern, explore other options like a balance transfer to a lower rate credit card, a debt consolidation loan or, debt management plans.

Frequently Asked Questions

Can a HELOC lower my monthly payments? Yes, if the HELOC’s rates and fees are lower than your current debts. Savings are often seen, especially with interest-only periods. Plan to reduce principal regularly.

How much can I borrow? Lenders often allow borrowing up to 85% of your home’s value, based on various factors. This applies to both HELOCs and home equity loans.*

Will consolidation affect my credit score? Opening a new account may affect your score, but reducing high-utilization cards can improve it over time.

What if I miss a payment? Late payments can incur fees and damage your credit. Since your home secures the debt, contact your lender early if payment issues arise.

Using your home’s equity to consolidate debt can be a smart way to lower interest and simplify payments. Whether you choose a HELOC or a fixed equity loan, it’s important to have a clear plan: compare rates and fees, automate payments, and avoid accumulating new debt. Understanding the pros and cons of each option helps you move confidently toward debt-free living.

 

*Disclosures: All loans are subject to credit and collateral approval, as well as income verification and employment verification. Home loan rates are subject to change at anytime, without notice. Credit, taxes, insurance, other costs, may increase the payment amount. Properties must be in Colorado.

Please consult a Mortgage Loan Officer for complete details.

Home Equity Line of Credit Disclosure

Important Terms of our HELOC

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TRUTH IN SAVINGS DISCLOSURE

Except as specifically described, the following disclosures apply to all the accounts.

  1. Rate Information. The dividend rate, or interest rate, and annual percentage yield on your accounts are set forth on the reverse side. The annual percentage yield is a percentage rate that reflects the total amount of dividends/interest to be paid on an account based on the dividend/interest rate and frequency of compounding for an annual period. For Certificates of Deposit and IRA Certificates of Deposit, the interest rate and annual percentage yield are fixed and will be in effect for the term of the account.  The annual percentage yield is based on an assumption that interest will remain on deposit until maturity.  A withdrawal will reduce earnings.
  2. Nature of Dividends. Dividends are paid from current income and available earnings after providing for the required reserves.  The dividend rates and annual percentage yields are the prospective rates and yields that the Credit Union anticipates paying for the applicable dividend period.
  3. Compounding and Crediting. Interest and dividends will be compounded and credited as set forth on the reverse side.  The dividend/interest period for each account is also set forth on our Rate and Fee Schedule.  The dividend/interest period begins on the first calendar day of the period and ends on the last calendar day of the period.
  4. Balance Information. The minimum balance required to open each account is set forth.  Interest is calculated by the daily balance method which applies a daily periodic rate to the principal in the account each day.
  5. Accrual of Dividends. Dividends will begin to accrue on cash deposits on the business day you make the deposit to your account.  Dividends will begin to accrue on noncash deposits (checks) on the business day you make the deposit to your account.  If you close your account before accrued dividends are credited, accrued dividends will not be paid.
  6. Account Limitations. The account limitations for each account are set forth in our Membership and Account Agreement
  7. Your account will mature on the maturity date set forth on your account receipt or renewal notice.
  8. Early Withdrawal Penalties. A penalty may be imposed if you withdraw any of the certificate funds before the maturity date or the renewal date, if this is a renewal account.
  9. Amount of Penalty. For Certificates of Deposit and IRA Certificates of Deposit the amount of the early withdrawal penalty for your account is 90 days’ interest for a term of 12 months or less, and 180 days’ interest for a term over 12 months.
  10. How the Penalty Works. The penalty is calculated as a forfeiture of part or all of the interest that have been earned on the account.  This penalty applies to earned interest and principal.
  11. Renewal Policy. Certificate of Deposit accounts will automatically renew for another term upon maturity.  You have a grace period of seven days in which to change or withdraw the funds without being charged an early withdrawal penalty.
  12. Exception to Early Withdrawal Penalties. At our option, we may redeem the account before maturity without imposing an early withdrawal penalty under the following circumstances:
    • When an account owner dies
    • or is determined legally incompetent by a court
    • or other body of competent jurisdiction.
  13. Nontransferable / Nonnegotiable. Your account is nontransferable and nonnegotiable.  The funds in your account may not be pledged to secure any obligation of an owner except obligations with the Credit Union.
  14. FEES FOR OVERDRAWN ACCOUNTS. Fees may be imposed on each check, draft item, ATM card withdrawal, debit card withdrawal, debit card point of purchase, preauthorized automatic debit, telephone initiated withdrawal or any other electronic withdrawal or transfer transaction that is drawn on an insufficient available account balance.  The entire balance in your account may not be available for withdrawal, transfer or payment of a check, draft or item.  You may consult the Funds Availability Policy for information regarding the availability of funds in your account.  Fees for overdrawing your account may be imposed for each overdraft, item or transaction.  If we have approved an overdraft protection limit for your account, such fees may reduce your approval limit.  Please refer to the Rate and Fee Schedule for current fee information.

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