Debt Consolidation: HELOC vs Refinance Planner
Using home equity to consolidate high-interest debt can save thousands. But should you use a HELOC or cash-out refinance?
TL;DR: HELOC usually wins for debt consolidation due to low closing costs (~$750 vs $12,000+) and flexibility to pay off quickly. Break-even on refinance costs takes 9+ years. Use HELOC if you’ll pay off debt in 3-5 years; consider refinance only for very long-term needs.
The Debt Consolidation Case
Example debt to consolidate:
- Credit cards: $20,000 at 22% = ~$550/month
- Personal loan: $10,000 at 12% = ~$330/month
- Total: $30,000 at ~18% effective = ~$880/month
HELOC for Debt Consolidation
Pros:
- Lower closing costs (~$750)
- Keep primary mortgage intact
- Pay off quickly without refinancing entire mortgage
Cons:
- Variable rate (could rise)
- Temptation to reuse credit line
Best when:
- Your first mortgage rate is excellent
- You plan to pay off debt in 3-5 years
- You want flexibility
Cash-Out Refinance for Debt Consolidation
Pros:
- Fixed rate (often lower)
- Single payment
- Longer term = lower payment
Cons:
- Higher closing costs ($10,000+)
- Resets mortgage to 30 years
- Converts short-term debt to long-term
Best when:
- Refinance rate is close to your current rate
- You want maximum monthly payment relief
- You’ll stay in home 10+ years
Debt Consolidation Example
Scenario: $30,000 debt consolidation, $300,000 mortgage at 6.5%
| Factor | HELOC (8.5%) | Cash-Out Refi (6.75%) |
|---|---|---|
| Monthly Payment | +$213 (interest-only) | New payment: $2,212 vs $2,097 = +$115 |
| Closing Costs | ~$750 | ~$12,000 |
| Break-Even | N/A | ~112 months (9+ years) |
| Best If | Pay off in 3-5 years | Staying 15+ years |
Winner: HELOC wins for most debt consolidation scenarios due to lower closing costs and ability to pay off quickly.
Our Calculator for Debt Consolidation
Enter your:
- Current mortgage details
- Total debt to consolidate
- Expected rates
We’ll show:
- Monthly payment comparison
- Break-even timeline
- Which option saves money
Debt Consolidation Tips
- Close paid-off accounts - Avoid running up balances again
- Have a payoff plan - Don’t stretch debt over 30 years
- Compare total cost, not just monthly payment
- Consider non-home-equity options - 0% APR cards, personal loans
Frequently Asked Questions
Is HELOC or cash-out refinance better for debt consolidation?
HELOC is usually better because closing costs are ~$750 vs $12,000+ for refinance. With a 3-5 year payoff plan, HELOC saves thousands. Refinance only makes sense if you’re borrowing 10+ years and want a single fixed-rate payment.
How much can I save by consolidating debt with a HELOC?
Consolidating $30,000 of credit card debt at 22% into a HELOC at 8.5% saves ~$335/month in interest. Over 3 years, that’s ~$12,000 in savings—even after accounting for HELOC closing costs.
What are the risks of using home equity for debt consolidation?
You’re converting unsecured debt (credit cards) into secured debt (home equity). If you can’t pay, you risk foreclosure. Also, you may be tempted to run up credit card balances again. Have a solid payoff plan and consider closing paid-off accounts.