How to Use a HELOC to Consolidate Debt

The information below is for educational purposes. 

Are you looking for ways to save money on your existing debt? Or a way to reduce the number of bills you manage each month? 

A home equity line of credit (HELOC) could be your solution.

Below, we’ll talk about how using a HELOC for debt consolidation can help you save money on interest and reduce the number of bills you’re managing each month. Let’s get into it! 

If you want to start with more information about HELOCs and all the things you can use them for, check out our previous article here.

What is Debt Consolidation? 

Debt consolidation allows you to combine multiple debts into a single loan or line of credit. Using a HELOC to consolidate debt has a few primary benefits: 

• You can save money with lower HELOC rates.
• Your bills can be simplified into one payment.
• You may be able to lower your monthly payments.

What Types of Debt Can You Consolidate? 

You can use a HELOC to consolidate most types of debt. HELOC rates are usually much lower than other types of consumer debt. So, you can use it to consolidate your bills from: 

• Credit cards
• Store cards
• Personal loans
• Student loans
• Medical bills
• Auto loans
• And more!

 

The table above shows the average rates for those types of loans. But your existing loans may have higher rates than those listed, and some lenders may offer lower HELOC rates. 

When You Should Consider a HELOC for Debt Consolidation

There are several benefits to using a HELOC for debt consolidation. Some of the reasons may include: 

• HELOC rates are lower than the rates on your existing loans.
• You can lower your monthly payments.
• If you can pay your debt off faster.
• You want fewer monthly bills to manage.

When You Shouldn’t Use Debt Consolidation

As you saw on the table above, sometimes HELOC rates aren’t lower than the rates on your existing loan. This means that a HELOC for debt consolidation isn’t always the right move. 

Some other reasons you may want to avoid consolidating your debt include: 

• When or if a HELOC would add time to your payment period.
• Your existing loans could qualify for future loan forgiveness. This could apply to some types of federal student loans. 
• You don’t want to use your house as collateral.
• Upfront fees outweigh the benefits.

To maximize your benefits, make sure you’re not paying more monthly or paying for longer before you commit to debt consolidation. And be sure to look for hidden fees before applying. 

How to Pay Off Your Debt with a HELOC

The method with which you pay off your other debts with a HELOC may vary depending on your financial institution. In many situations it’s as easy as 1-2-3. 

1. Open your HELOC account.
2. Transfer funds from your HELOC to your personal account.
3. Use those funds to pay off your other debt accounts.

In many cases, your financial institution may offer to make those payments with your HELOC for you. In some other cases, this may even be required so they can ensure the payments are being made. 

Consolidate Your Debt with a Veridian HELOC

Veridian Credit Union has competitive HELOC rates. We can help you get out of debt faster and pay less interest over time. 

Check out our HELOC rates today. Or click below to learn more about all the things you can pay for with a HELOC. 

See our HELOC Rates More About HELOCs