Should you use a home equity line of credit for debt consolidation?

A Home Equity Line of Credit can help homeowners pay off debt with a low interest rate and interest-only minimum payments.

Using a HELOC to Pay Off Debt

The end of January means a few things for some homeowners – coming to terms with holiday credit card bills and planning ahead for tax bills (either income taxes or property taxes).

A Home Equity Line of Credit (HELOC) can be invaluable here.  A HELOC is one of three main strategies for accessing your home equity. Whether you or need access to funds to handle a large tax bill, accessing your home equity be a good move.

Here are three reasons you should consider using a HELOC with SF Fire Credit Union this winter to pay off debt – and a reason why you shouldn’t.



1. A low interest rate

A Home Equity Line of Credit will generally have a lower APR than credit cards because, while it is a variable rate, it’s secured by the equity in your home.

You might have used a credit card for your holiday shopping (for convenience, or maybe to earn points). But when it comes time to pay, a HELOC will let you pay off that balance at a lower interest rate, which will save you a lot in the long run, especially if you can pay more than the minimum.

View HELOC Rates today  



2. Debt consolidation

If you have more than one outstanding loan, such as credit card balances on multiple cards, you can combine those debts into one with the SF Fire Credit Union HELOC. Simplify your banking by reducing the number of payments you make each month.

3. Low monthly payments

And with interest-only payments as the monthly minimum due*, you free up cash flow while staying current on your debt, while the lower interest rate will let you pay off debt faster, especially if you can pay more than the minimum due. Get a large income tax bill? You can use a HELOC to pay it off a bit at a time.



And why you should think twice …

It’s your home

The very reason why the interest rates are low is a reason to pause before proceeding. Your home acts as security for your HELOC; if you can’t keep up with payments, you could lose your home.

Before you rely on your home equity to pay off debt, ask yourself:

  • Do I have a solid budget in place?
  • If I’m paying off credit card debt, can I resist using those cards again?

If you borrow against your equity but turn around and accrue a new large credit card balance as well, you might find yourself in difficult circumstances.



We’re here to help

After considering these points, you may still have questions about your particular situation. Our Real Estate Loan officers are here to help you answer questions about whether a HELOC is a good option for you. Meet the team here, and feel free to reach out with any questions.

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*For the first 10 years, or what’s called the “draw” period. After those ten years, the line of credit is frozen and your remaining balance is amortized to be paid off within a subsequent 15 years.