How you decide to pay off your debt is all up to you. Not each method works for everyone. Some people go for debt snowball or debt avalanche payment plans, while others work on debt consolidation. If you own a home, then you might want to consider using it for debt consolidation.

Even though a home equity loan for bad credit might work for some people, it’s not necessarily the best option for everyone. Before you take out your home equity to pay off debt, be sure to review the pros and cons:

Pros and Cons of Using Your Home Equity for a Debt Consolidation

If you are thinking about debt consolidation, then a home equity loan or a home equity line of credit (HELOC) may be worth considering. The interest rates on HELOCs and home equity loans are often much lower than on credit cards and some other installment loans. Transferring your debt to a low-interest rate of a home equity line of credit can save you a lot of money in the long run.

A home equity loan is typically closed-ended loan, which consists of a single disbursement of funds at initiation, and it’s paid off over the loan term and fixed monthly payments. A home equity line of credit is a revolving line of credit, where over time, multiple draws can be made and up to the maximum loan amount.

Both home equity lines of credit and home equity loans are not working without the risk. In case you somehow fall to make your monthly payments, then you will be facing a foreclosure on your home, even if your primary mortgage is current.

It’s also possible that your home decreases in value, leaving you owing more than your home is worth.

Who is Eligible and Who Should Use It?

You can get a home equity line of credit or home equity loan if you have equity in your home, or soon after you buy a home. The amount that you can borrow depends on the type of loan you’re after and the lender.

Your home’s equity is probably one of the most valuable things that you own. It may take you up to 15-30 years to pay it off, so you should be cautious when using it. I would recommend you to use it only for emergency situations such as unexpected medical bills or an emergency debt consolidation.

Think particularly about the purpose of the loan down the line. Also, make sure to consider your other financial aspirations, your future goals, and if you plan to stay in your home for the long term or not. All of these considerations can affect your decision.

Is Home Equity Loan a Good Decision for Debt Consolidation?

Using a HEL for debt consolidation would make a financial sense because its rates are substantially lower than credit interest rates, for example. Because of that, a home equity loan will consolidate debt in one single payment while helping users to pay less in interest over time.

While home equity may sound to you as a no-fail, easy solution to debt, you should exercise caution. Taking on home equity debt may be tricky, especially for those that are having chronic spending issues.


There are so many avenues that you can explore when considering debt consolidation. Compare your financial situation to specific criteria to decide if your home’s equity makes sense for you. In case you’re okay with it, ensure that the ten-plus year payment is your choice. If not, then you can check out some less-risky methods to consolidate your debt.