Should I Use My Home Equity to Pay Off Debt?

No one likes to be in debt. For some of life’s major purchases, borrowing money may be necessary, such as purchasing a home or a car. In fact, carrying a small amount of debt can even help your credit score as it shows lenders that others have trusted you to make your payments and manage your debt wisely. However, too much debt can get in the way of other financial goals that you may have, such as saving for retirement or a new home.

Let’s say that you want to pay off your debt once and for all. Not all solutions for getting out of debt are created equally. Some could make your financial situation worse. But there are also solutions that, if available, can help you get rid of your debt and still save for your financial goals. One such solution is a home equity loan—these often offer the best terms for people looking to get rid of their debt.

Home Equity Loans

Home equity is determined by taking the current value of your home and subtracting the amount of money you have paid towards your mortgage. If you have been paying the mortgage on your home for many years, you may have a significant amount of equity in your home. A home equity loan means that you are borrowing a lump sum amount that could be as much as 85% of the equity you have put into your home. The loan’s final amount and interest rate will be determined by your credit score, borrowing history, and other factors. A key thing to remember is that your home will have to be provided as collateral to receive such a loan.   

Why Choose a Home Equity Loan?

Home equity loans often qualify for lower interest rates, meaning that you will be paying less money over the life of the loan than you would if you use other loan options. The loan term for home equity loans is often longer as well. Having more time to pay off the loan could result in lower monthly payments.

If your loan amount is greater than the sum of all your other debts, you can streamline your payment process and budgeting. Instead of managing several payments to lenders for multiple debts such as credit cards, student loans, and medical bills, you can pay off those debts at once with a single loan that has one monthly payment to the lender who provided the home equity loan. Making one payment per month can simplify your finances and make your life much easier!

Home Equity Loans Aren’t for Everyone

There are some risks in using a home equity loan to consolidate your debts. The greatest risk is that your home is your collateral. If you are consistently late with your loan payments or miss them completely, the lender could foreclose on your home. If you fear this could be a possibility or if you have struggled with making timely payments in the past, then a home equity loan may not be right for you.

Home Equity Loans Are Only the Beginning

Being able to pay off all your other debts in one lump sum is a great feeling! One pitfall you want to avoid, though, is finding yourself owing to other lenders in addition to paying off your home equity loan. Before embarking on the home equity loan process, make sure that you have a plan in place so that you don’t introduce new debts.

There Could Be Costs to Getting the Loan

Home equity loans are based on the current value of your home, not necessarily the purchase price. Your home’s value may have increased or decreased since you bought it. Your home will need to be appraised to determine the current value, which often comes with a fee. In addition, home equity loans often require you to pay closing costs. Some lenders may waive this cost depending on the terms of your loan, but be sure to ask when shopping around. These costs can certainly add up, but if the loan amount you qualify for minus these costs can still get rid of your other debts, it may be worth it.

Other Options for Debt Relief

A home equity loan is an excellent option for debt relief. However, it is not the only option if you wish to consolidate other debt payments and find relief.

Personal Loans

While these loans typically come with higher interest rates than a home equity loan, personal loans often feature lower interest rates than other options like credit cards. In addition, your house does not have to be used as collateral to obtain the loan. Typically, you cannot borrow as much for a personal loan as you could with a home equity loan, so the amount you qualify for may not cover all your debts. This is important to consider as you don’t want your personal loan to potentially be another monthly payment that you could fall behind on.

Debt Settlement

Another great option to help with your debt payments is a debt settlement company such as ACCS. Experienced debt specialists will take time work with you and help find a relief plan for all your debts that can help ease the burden of high monthly payments. The team at ACCS can even negotiate with your lender or the collection agency on your behalf until both parties agree on a lump sum that you pay the creditor. This lump sum is based on your budget and is often less than you originally owed.


Filing for bankruptcy is an option that should be considered if none of the previously mentioned options will work for you. While filing for bankruptcy can provide a fresh start for your financial path, it can also require you to give up other financial assets and even your home. You must meet specific requirements to qualify for bankruptcy, and even if you are eligible, bankruptcy can significantly damage your credit for many years to come.

Everyone Is Unique

While using a home equity loan to consolidate and pay off debt can be a great solution, it is not for everyone. There are many solutions for paying off debt, and you may feel overwhelmed—but don’t be! The specialists at ACCS are here to help you explore each option and find a financial plan that will help you achieve your goals. Request a Custom Debt Relief Plan today!

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