Should I Use HELOC to Lower My Debt Payments?

Advantages of Debt Consolidation

The interest rate offered on a HELOC, or home equity line of credit, is typically much lower than that on other forms of debt. In addition, you can consolidate all of your debt payments into one monthly payment and pay only interest during the "draw period," which is when you can borrow from the HELOC.

Your Home as Collateral

A home equity line of credit holds your home as collateral for the money lent to you. If you fall far behind on payments on your HELOC, the lender can foreclose on your home. In addition, you need to pay off the entire HELOC immediately if you sell your home.

Bottom Line

Because a HELOC can put your home at risk, be sure you can make the monthly payments at the variable interest rate. In addition, address the root causes of your overspending to avoid future problems, especially if the debt payments transferred to the HELOC are due to excessive credit card spending.