Home Equity Loan for Debt Consolidation: What to Consider

Debt in America is certainly not a new problem. Many families face balances on high-interest credit cards, personal loans, and medical bills. If this sounds like you, know you’re not alone — and you’re not out of options.  

Using a home equity loan for debt consolidation could be a viable solution for reducing your debt. It can simplify your finances by rolling multiple debts into one predictable monthly payment, often at a much lower interest rate than what you’re currently paying.  

But like any financial move, it’s not a one-size-fits-all solution. Whether it’s the right choice for you depends on a few key factors, like your home’s value, how much equity you’ve built, and your broader financial goals. 

This article covers the basics of consolidating debt with a home equity loan. We’ll guide you through the pros and cons, considerations to keep in mind, and steps to begin the process.  

Key takeaways 

• A home equity loan for debt consolidation can combine multiple debts into one fixed monthly payment, often at a lower interest rate. This may help you save while you pay off credit cards or other high-interest debt. 
• Interest rates on a home equity loan are often lower than credit cards or personal loans because your home secures the loan. This is important because failure to repay an equity loan could put your home at risk. 
• This debt consolidation strategy may work well if you have enough home equity, strong repayment habits, and a plan to limit future high-interest debt. 

Benefits of using home equity for debt consolidation 

Using a home equity loan for debt consolidation is a strategy that benefits homeowners in the following ways: 

One predictable payment 

A home equity loan lets you combine multiple debts into a single loan with a fixed monthly payment. Doing so can make managing your finances more straightforward by reducing the number of bills you have to track each month.  

With one consistent payment, you’ll know exactly what to expect, which can make budgeting easier and help you stay consistent with your repayment plan and other financial goals. 

Lower interest rate 

One of the biggest potential advantages of consolidating debt with a home equity loan is securing a lower interest rate. Because the loan is backed by your home, rates are typically much lower than unsecured credit cards or personal loans. That difference can add up to real savings over time, especially if you’re carrying balances on high-interest loans. 

Potentially lower monthly payment 

By trading multiple high-interest debts for a single loan with a lower rate — and possibly a longer repayment term — you may be able to lower your monthly payment. That can free up cash for other priorities, reduce financial stress, and give you a clearer path toward debt payoff. 

Potential drawbacks 

Consolidating debt with a home equity loan can be a helpful tool, but it’s not without risks. Here are a few potential drawbacks to keep in mind: 

• Your home is used as collateral. If you’re unable to make payments, you could put your home at risk. It’s important to borrow responsibly and make sure you can afford what you’ll need to repay. 
• It doesn’t address spending habits. Consolidating debt can free up credit lines, but without a plan to avoid future debt, it’s easy to fall back into old spending patterns. 
• You could pay more over time. Extending your loan term may lower your monthly payment, but it could increase the total interest you pay in the long run. 

Should you consolidate debt with a home equity loan? 

A home loan for debt consolidation can be smart in the right situation. This strategy tends to work best for high-interest, long-term debts like credit cards or personal loans. If your goal is to simplify your payments and reduce interest costs, going with this plan might help you make faster progress. 

Here are some scenarios where using a home equity loan could be a good option: 

• You have at least 15% to 20% equity in your home 
• You’re managing multiple high-interest debts 
• You’re confident you can avoid racking up new debt 
• You prefer the predictability of a fixed monthly payment 
• You’re looking for a structured payoff plan that fits your budget 

That said, smaller or short-term debts may be better handled with other strategies, like the avalanche or snowball method. These approaches help you pay off debt without taking on a new loan or using your home as collateral. 

How to get a home loan to pay off debt 

If you’ve decided consolidating debt with a home equity loan is the right move, you might be curious about your next step. Here’s a quick breakdown of how the process typically goes: 

1. Confirm you meet qualifications 

To qualify for a home equity loan for debt consolidation, most lenders look for a few key things: solid credit (typically 620 or higher), a reliable income, and enough equity in your home, usually at least 15% to 20%. You’ll also need a manageable debt-to-income (DTI) ratio, which shows you can handle additional loan payments without overextending your budget. 

2. Choose your loan and lender 

Not all home equity loans are the same, so it’s worth comparing lenders, interest rates, repayment terms, and fees. Look for a loan that fits your goals — whether that’s lowering your monthly payment, shortening your payoff timeline, or getting cash quickly. AmeriSave offers several types of home loans, making it easier to find the best home equity loan for your debt consolidation plan. 

3. Submit your application 

Once you’ve chosen a lender, the next step is applying. You’ll provide details about your income, employment, debts, and home value. Most lenders will also request a credit check and a property appraisal to confirm your home’s equity.  

At AmeriSave, our application process is streamlined and digital, making it easier for you to move forward quickly and confidently with the loan process. 

4. Consolidate your debt 

After your loan is approved and funded, it’s time to pay off your existing debts. You can either use the loan funds to pay your creditors directly or, in some cases, work with your lender to disburse payments. Either way, the result is the same: multiple debts are replaced with one new loan, simplifying repayment and potentially reducing your monthly burden. 

5. Stick to your repayment strategy 

Consolidating your debt is just the beginning — the key is sticking to your new plan. Make on-time payments, avoid taking on new high-interest debt, and adjust your budget as needed to stay on track. A home equity loan can offer structure and stability, but your long-term success depends on creating healthy, consistent habits and a clear financial goal. 

Get started with AmeriSave 

If you’re thinking about using a home equity loan for debt consolidation, AmeriSave can help you explore your options. With our simple online tools, you can quickly estimate how much equity you have and see what your monthly payment could look like. From there, our team is here to guide you through every step of the process. 

Explore your options today and discover if using your home’s value could help you consolidate high-interest loans and pay off your debts sooner. 

Frequently asked questions 

Is a home equity loan or a HELOC better for paying off debt? 

Either a home equity loan or a home equity line of credit (HELOC) can work for debt consolidation, but they’re structured differently. A home equity loan offers a lump sum with a fixed interest rate and predictable payments. A HELOC works more like a credit line, offering flexibility to borrow what you need over time. The better choice depends on your goals and spending habits. 

Are there any drawbacks to using a home equity loan for debt consolidation?

Yes. While a home equity loan can simplify payments and reduce interest, it also turns unsecured debt into debt secured by your home. If you miss payments, you put your home at risk. There may also be fees and closing costs to consider. And if you continue using credit cards after consolidating, you could end up in deeper debt than before. 

Can I use a home equity loan for debt consolidation? 

Yes, many homeowners use home equity loans to consolidate credit cards, personal loans, and other high-interest debts. It’s one way to streamline monthly payments and potentially save on interest. That said, qualifying depends on factors like your equity, credit score, and income. Our Loan Experts can help you assess whether it’s the right fit for your situation.