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Home Equity Loans
Should you use a HELOC or home equity loan to consolidate debt?
Updated Aug 10, 2026
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Key takeaways:
Home equity loans typically have fixed interest rates and can only be used once.
HELOCs often have variable interest rates and can be borrowed from repeatedly during the draw period.
A HELOC with a fixed rate could give you the best of both types.
All the time and care you've poured into your home does more than make it a comfortable place to live. It may also help you build equity, which is the difference between your home's value and your mortgage balance. You don't even need to sell your home to benefit from your equity. You could borrow against it in cash through a home equity line of credit (HELOC) or home equity loan. With cash in hand, you could consolidate high-interest debt, fund home improvement projects, or meet other important financial goals
Both a HELOC and a home equity loan are secured by your home, which makes them different from credit cards or personal loans. Borrowing limits are typically higher, but if you don't repay it you could lose your home to the lender.
Not sure which option is the best for you? Let's go over the key differences and when you might choose one option over the other.
What a HELOC and a home equity loan are
A home equity line of credit (HELOC) is a line of credit that allows you to borrow funds, repay them, and borrow again for a set period. Once this draw period, which usually lasts 5-10 years, ends you repay what you borrowed with interest.
A home equity loan is a second mortgage. You receive the full amount as a one-time lump sum, then repay it with a fixed interest rate. A fixed rate doesn't change for the life of your loan, so your payment stays the same each month.
Both options use your home as collateral. Collateral is something of value you pledge to the lender for a loan. If you don't repay the loan, the lender could take your collateral.
Most lenders offer variable rates on a HELOC. A variable rate is attached to a benchmark rate; if the benchmark rate goes up, so does the rate on your HELOC. Achieve Loans offers a fixed rate. If you get a fixed-rate HELOC, the rate doesn't change for the life of your loan.
Repayment periods typically range from 10 to 25 years depending on your lender and the term you choose. For Achieve Loans, payments are principal plus interest from day one. Other lenders might require interest-only payments in the draw period, and full principal and interest payments in the repayment period.
What debt you can consolidate with home equity
A home equity loan or line of credit could help you consolidate and streamline unsecured debts. Unsecured debt is debt that isn't backed by collateral, like credit card balances and medical bills. Examples of debts you could consolidate with home equity include:
Retail store cards
Credit cards
Medical bills
Buy now, pay later balances
Personal loans
Private student loans
You could also use a home equity loan or line of credit to pay off a deficiency balance. This kind of debt can happen when a car is repossessed. If you still owe money on the loan, the lender could sell the car at auction. If the sale doesn't bring in enough to cover the loan amount, the rest becomes a deficiency balance the lender expects you to pay. While the original car loan was secured by the vehicle you purchased, a deficiency balance isn't attached to any collateral.
Key differences between a HELOC and home equity loan
Feature | Home Equity Line of Credit (HELOC) | Home Equity Loan |
Loan Structure | Revolving credit line | Single-use loan |
Interest Type | Variable or fixed rates | Fixed rates |
Access to Funds | Lump sum or draw funds as needed | Receive full amount upfront |
Repayment Terms | Variable repayment (can have interest-only options) | Fixed monthly payments |
Loan structure
One important difference between a HELOC and a home equity loan is in the core structure:
A HELOC is a revolving credit line that you can draw from, repay, then draw from again, up to your credit limit. You can repeat this cycle as much as you need during the draw period.
A home equity loan is a single-use loan. Once you've repaid your loan, the contract is over and the loan is done. If you want to borrow more money, you'll need to apply for a new loan.
Interest rates
Home equity loans usually have a fixed interest rate that stays the same for the duration of your loan. A HELOC could be a little more complicated.
You can get HELOCs with a fixed interest rate or a variable interest rate. Like a home equity loan, a HELOC with fixed rate will maintain the same interest rate the whole time you use your HELOC. With a variable-rate HELOC, your interest rate could go up or down with the market.
Access to funds
A home equity loan gives you the full loan amount at closing. With a HELOC, how you get the money can vary based on your lender.
Some HELOCs require taking the full amount out in one draw at the start. Others have a smaller initial draw requirement, then let you draw the rest of the funds later if you need them.
Repayment terms
A home equity loan is a simple installment loan. You'll get the full loan at once, then make regular monthly payments as set by the terms. Home equity loans can have a repayment term of up to 30 years. Each monthly payment will be the same amount, due at the same time every month.
A HELOC can be a little bit more complicated. Most HELOCs begin with the draw period, which is usually around 10 years. You can use the funds however you like during the draw period and make interest-only minimum payments if you choose.
Once the draw period is over, you enter the repayment period, usually around 20 years. During the repayment period, you'll need to make payments that include both the principal you borrowed and any accrued interest.
When is a HELOC a good option for debt consolidation?
A HELOC could be a good choice for consolidating debt if you want flexible repayment terms. The interest-only payments during the draw period could be more manageable than the fixed payments of a home equity loan. This could give you time to get your finances stabilized before entering the repayment period when your monthly payment will go up.
When is a home equity loan a better fit for debt consolidation?
If fixed repayment terms are important to you, consider a home equity loan for consolidation. A home equity loan has the same payment due each month, which makes it predictable and easy to include in the budget. You'll also start paying down your principal right away, which could save you money on interest fees versus a HELOC with interest-only payments.
HELOC vs. home equity loan: How to use your home equity
How to consolidate debt with home equity
Your ability to get a home equity loan or HELOC to consolidate debt depends on how much equity you have, your credit scores, and other factors. The process follows a few clear steps.
Check your equity. Subtract your mortgage balance from your home value to find your estimated equity. Lenders use this number and other factors to decide whether to approve you for a HELOC.
Review your credit. Qualifying for the loan depends on meeting the lender’s minimum credit score requirements. Learn how to check your credit score for free.
Compare a HELOC and a home equity loan. Use a home equity loan or HELOC payment calculator to estimate your monthly payments. Choose the structure that fits your budget and your future borrowing needs.
Apply with a lender. Shop around to compare loan rates, terms, and eligibility requirements so you find the best fit. When you're ready to apply, submit your income, home, and debt details for review.
Use the funds to pay your other creditors. Once a lender approves your application, you can advance the funds and apply them to the balances you want to consolidate.
Repay on schedule. Make each payment on time to stay on track.
A debt payoff calculator could help you compare your current payments with a new one.
Home equity requirements for debt consolidation
Requirements vary by lender. For an Achieve Loans debt consolidation request, you can apply with fair credit or better.
On average across lenders, borrowers tend to have a credit score around 680, a combined loan-to-value ratio up to about 85%, and a debt-to-income ratio below 43%. These figures are averages and estimates, not guarantees.
A combined loan-to-value ratio is your total home debt compared to your home value. A debt to income (DTI) ratio is your monthly debt payments compared to your monthly gross income.
Say your home is worth $400,000 and you owe $240,000 on your mortgage. A lender that allows a combined loan-to-value ratio of 80% would allow total home debt of $320,000. Subtract the $240,000 you already owe, and you could borrow up to another $80,000.
Advertised rates reflect a best-case borrower: a high credit score, a low combined loan-to-value ratio, and strong income.
Choosing the best way to consolidate debt with home equity
The best way to use your equity to consolidate debt will depend a lot on your specific needs. Here's what to consider:
Repayment structure
Type of interest rate
Length of repayment
Future borrowing needs
Still not sure? You could chat with a loan expert to go over your options.
Scenario: HELOC vs. home equity loan for $40,000 of credit card debt
A good example is worth a lot. Let's imagine both Trisha and Sally each need to consolidate $40,000 in credit card debt. Each has multiple credit cards with an average interest rate of 25%.
They're both currently paying about $1,200 a month just to cover the minimum payments. At that rate, they’ll need 40 years apiece to pay off their respective credit card debts.
Trisha chooses a home equity loan to consolidate her credit card debt. Sally opts for a home equity line of credit.
Trisha's home equity loan
Trisha's home equity loan has a fixed 13% interest rate and a 20-year term. She gets her $40,000 disbursed as a lump sum after closing.
Trisha pays off her credit cards and starts making monthly payments. Her fixed terms mean she pays the same $470 a month for the next 20 years. Once she's done, her loan is finished.
Sally's HELOC
Sally's HELOC has a variable 13% interest rate, a 10-year draw period, and a 10-year repayment period. She initially draws $40,000 to pay off her credit cards.
Sally makes interest-only payments for the first 10 years. Her variable interest rate changes a few times, so her monthly payment changes a little. On average, she pays $430 a month.
Once she enters the repayment period, Sally's monthly payment goes up. If her variable interest rate is still around 13%, she'll pay about $600 a month for the next ten years until her principal is paid off.
The results
Both Trisha and Sally cut their monthly debt payments by at least half by consolidating with home equity. They also both paid off their credit cards faster and for less money than if they'd made only their minimum card payments.
Author Information
Written by
Brittney is a personal finance expert and credit card collector who believes financial education is the key to success. Her advice on how to make smarter financial decisions has been featured by major publications and read by millions.
Reviewed by
Rebecca is a senior contributing writer and debt expert. She's a Certified Educator in Personal Finance and a banking expert for Forbes Advisor. In addition to writing for online publications, Rebecca owns a personal finance website dedicated to teaching women how to take control of their money.
Frequently asked questions about using a HELOC or home equity loan to consolidate debt
A HELOC could be better if you want flexible repayment options and a revolving credit line you could use again during the draw period.
A home equity loan could be better if you want fixed, predictable monthly payments, and you only need a one-time disbursement of funds.
A HELOC with a fixed interest rate could be a good middle-of-the-road choice, since it offers both a fixed rate and a potentially reusable credit line.
Yes, if approved you can use most HELOCs to consolidate debt, including credit card debt.
You can apply with Achieve Loans if you have fair credit or better. Credit score requirements depend on the lender and the loan. Your credit score influences the interest rate you’re offered. If you don’t qualify for a rate that’s low enough to make consolidating worthwhile, you might want to work on raising your credit score enough to qualify for a better rate.
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