Should You Use Home Equity For Debt Consolidation? Weigh in on the experts

As a homeowner, the investment you make in your home can be your strongest financial asset.

Over time the equity you build in your home can even become a financial resource in one form or another Home equity loan or Home Equity Line of Credit (HELOC). is often used for this Home renovations or necessary repairsYou can tap into home equity to help pay off other debts or in times of financial hardship.

Because home equity loans and HELOCs often are Low interest rates Instead of personal loans and especially credit cards, you can use your home equity to help out Consolidate your existing high-interest loans. But is it the right move for your finances? We asked two financial experts for their advice.

You can learn more about the home equity rates you qualify for here.

Should You Use Home Equity For Debt Consolidation?

Both home equity loans and HELOCs can help you save on debt payments — but there are risks to keep in mind. Here’s what financial experts say you should consider before you make a decision.

Compare interest rates

Using home equity to consolidate debt is something Julia Colantuono, CFP, APMA, financial planner and founder of One Financial Design, says she’s recommended to clients in the past.

“The main reason to do this is if you have high-interest debt such as credit cards, student loans or other personal loans,” she says “You want to make sure the interest rate is lower than other high interest rate loan sources, otherwise it won’t be worth it to consolidate.”

Say, for example, you have a $7,000 balance on a credit card with a 20% APR (closer to the national average, The latest Federal Reserve data) though your exact rate will be up to you Credit score, location and other factors, today there are several options for HELOCs and home equity loans with interest rates below 10%. Combining your $7,000 balance with that rate difference could save you hundreds of dollars over the life of the loan.

Explore the home equity options available to you now and learn more.

End the debt cycle

If you’re going to use the equity you’ve built up in your home as a tool to pay off other debts, think about why you went into debt in the first place. Create a plan to ensure you don’t end up with the same high-interest balance again in the future.

“If debt is accumulating because of a lack of discipline, extra care needs to be taken not to accumulate more debt after the consolidation,” says Tim Melia, CFP, MBA, financial planner and founder of Embolden Financial Planning.

Create a budget or spending plan so that you can pay off your balance in full, and spend only what you can afford while your bills are due.

Consider the long-term implications as a homeowner

Read the fine print of your loan or credit agreement and make sure you understand the potential consequences that could affect you as a homeowner.

Melia says, give some serious thought to what could happen if there’s a problem with repayment, including fees, possible foreclosure and property damage.

If you have any plans to sell your home in the next few years, you should also consider how your loan repayment timeline could affect the potential sale. “Now, your debt is tied to your home,” Colantuono said. “So if you need to sell your home, you’ll owe that extra HELOC.”

As with other debt consolidation options, consider the big picture of your financial situation before using home equity for your loan, Colantuono says.

If a home equity loan or HELOC sounds right for you, compare today’s best rates and see what you might qualify for.