Should you use a HELOC to pay off high-interest debt? 5 things to know first

This article was paid for by Achieve.

Americans are struggling to keep up with their debts. More than a third of U.S. consumers said they're unable to make full payments on all their monthly bills, according to a recent survey by personal finance platform Achieve and Money.com. Over a quarter described their debt load as "unmanageable."

People saddled with credit card bills and other high-interest debt are turning to debt consolidation loans, debt settlement plans and even bankruptcy for relief. If you're a homeowner with sufficient equity, though, a home equity line of credit (HELOC) could give you the breathing room you need to climb out of debt, rather than just keep throwing money at interest.

A HELOC leverages the equity in your house to provide a revolving line of credit. Interest rates on HELOCs are usually significantly lower than credit card APRs, allowing borrowers to consolidate their bills with a better rate. But HELOCs can come with stringent requirements and serious risks, including losing your home if you don't keep up with payments.

Here are five important things to know before taking out a HELOC to pay off high-interest debt.

A HELOC is a revolving line of credit that uses your home as collateral. That's why homeowners usually need to have at least 15% to 20% home equity to be approved.

During the draw period, you can borrow, pay down your balance and borrow more — up to your approved credit limit. Borrowers can be approved for HELOCs from Achieve Loans from $15,000 to $700,000.

Most HELOCs have variable interest rates, so borrowing costs may increase or decrease over time as market interest rates change.

"A variable rate leaves you at the whims of interest rate changes in the broader financial markets," Austin Kilgore, an analyst for the Achieve Center for Consumer Insights, told CNBC Select. "For consumers already dealing with high-interest debt, that uncertainty is the last thing you need."

HELOC borrowers typically make interest-only payments during the draw period, then switch to full principal-and-interest during repayment. That transition can cause "payment shock," according to Kilgore, when their monthly bill suddenly triples or even quadruples.

Through its lending division, Achieve Loans, Achieve offers a fixed-rate HELOC with a five-year draw period that is fully amortizing. That means borrowers make payments toward both principal and interest from the start.

"We wanted to simplify the experience for consumers," Kilgore said. "A fixed rate and predictable monthly payments. No teaser rate, no large payment at the end of the draw period — none of the things that can lead to payment shock and confusion."

While requirements vary, most HELOC lenders want to see a minimum FICO score of 620 to 650 and a debt-to-income (DTI) ratio below 43%. (Some may go as high as 50% depending on your credit score, available equity and cash reserves.)

Achieve Loans has more flexible requirements, though, approving homeowners with scores as low as 600.

"We're one of a few lenders that will go that low," Kilgore said. "Banks and credit unions that traditionally offer HELOCs wouldn't typically extend an offer to somebody at that level."

There's also a cap on how much equity you can tap: typically, the combined loan-to-value (CLTV) of your HELOC and remaining mortgage can't exceed 85% of your home's value. Achieve Loans will accept CLTVs from 75% to 90%, depending on your credit score, property type and other factors. 

• Lower interest rate: HELOCs have lower APRs than credit cards or personal loans. According to Kilgore, Achieve Loans customers save an average of just under $800 a month compared to making the minimum payments on all the debts they've consolidated.
• Smaller monthly bill: A HELOC's longer term can mean smaller monthly payments, improving your cash flow as you tackle your debt.
• Streamlined payments: Making a single monthly payment is simpler than juggling multiple credit card balances, interest rates and payment dates.
• Flexibility: A HELOC is a line of credit, so you only pay interest on what you use.  
• Improved credit score: Replacing multiple credit cards with a HELOC can significantly lower your credit utilization, a major factor in determining your FICO Score.

• Payment shock. Many borrowers are unprepared for the spike in their monthly payment when the interest-only draw period ends and the repayment period starts. A variable rate can add more unpredictability. With Achieve Loans' fixed-rate HELOC, payments include principal and interest from the start, so there are no surprises.
• You're not eliminating debt, just restructuring it. A HELOC's interest rate is preferable to a credit card APR, but it's still a debt. If you're in financial straits because of overspending, opening a new credit line could be a recipe for disaster. 
• You're losing home equity: Borrowing drains home equity, leaving you with fewer assets and risking an upside-down mortgage, where you owe more on your house than it's worth.  
• Your house is collateral. Even if you're current on your primary mortgage, your HELOC lender could foreclose if you fall behind on payments.

If a homeowner wanted to commit a portion of their home equity to consolidate debt, said Kligore, "they need to understand that HELOC terms are not the same from one lender to the next."

1. Calculate your home equity: You'll need at least 15% equity to get approved for most HELOCs. To calculate how much equity you have, subtract your remaining mortgage balance (and any other property liens) from your home's current market value. You can get a baseline estimate of its value on Zillow or Redfin. 

2. Review your credit and income profile: Borrowers typically need a FICO Score of 620 to 650 to qualify for a HELOC, although Achieve Loans approves applicants with scores as low as 600. You'll also want to make sure your income-to-debt ratio is below 50%.

3. Decide whether a fixed or variable rate is right for you: Variable-rate HELOCs usually start with lower rates that adjust over time based on market conditions, causing your monthly payment to rise or fall. Fixed-rate HELOCs, like those offered by Achieve Loans, are rarer. They provide predictability but you won't benefit if rates drop.

4. Shop for the best rate and terms: Rates vary considerably among banks, credit unions and non-bank lenders. Achieve Loans fixed-rate HELOCs are available with an APR starting at 5.50% for highly qualified borrowers. While 20-year repayment terms are common, Achieve Loans offers terms of 10, 15, 20 and 30 years.

5. Apply and get approved: The usual HELOC application and underwriting process can take up to three weeks, as the lender reviews your creditworthiness and orders a home appraisal. Achieve Loans uses an automated valuation model that enables applicants to receive conditional approval in minutes and have cash in hand in as little as seven days. 

A HELOC can help you pay off high-interest debt and save money on interest, especially if you're consolidating credit card balances. Lenders like Achieve Loans will even pay your creditors directly. The important caveat is that a HELOC is secured by your home, so if you fall behind on payments, you risk foreclosure.

But if you're a homeowner with adequate cash flow, a solid repayment plan and the discipline to avoid taking on new debt, a HELOC can be an effective pathway to financial freedom.

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Home equity loans are available through Achieve Loans (NMLS ID #1810501). Equal Housing Opportunity. Offers may vary and loan requests are subject to eligibility requirements, application review, loan amount, loan term, and lender approval. Product terms are subject to change at any time. Line amounts between $15,000 and $700,000, and assigned based on credit score, debt-to-income ratio and combined loan-to-value ratio. 10, 15, 20, and 30-year terms available. Minimum 600 credit score applies. Fixed-rate APRs range from 5.50% to 13.500% and are assigned based on underwriting requirements.  Lowest APRs require a FICO equal to or greater than 700, CLTV equal to or less than 50%, DTI equal to or less than 15%, opt-in to ACH (not required to obtain loan) and loan amount equal to or less than $150,000. 

Offer APRs assume automatic payment enrollment and DTI less than 15% discounts.  Rate discounts are removed if these conditions are not met.  All terms have a 5-year draw period with the remaining term being a no-draw period. Payments are fully amortized during each period and determined by the outstanding principal balance each month. Closing fees range from $750 to $10,304, depending on line amount and state law requirements and may include origination (up to 4.0% of line amount) and underwriting ($725) fees if allowed by law. Property must be owner-occupied. CLTV maximums range from 75% to 90% and are based on credit score, property type and include the Achieve Loans new loan request.  Property insurance is required and flood insurance may be required depending on location. You must pledge your home as collateral. Loan funding time is dependent on full application and documentation submission; average funding time is 11 business days for 2025, including rescission. The monthly/yearly savings claim is based on average monthly debt savings from originated loans in Q4 2024. But monthly/yearly savings varies based on each loan situation and can be more or less than $800/$10,000. Contact Achieve Loans for further details.

Affiliated Business Arrangement Disclosure: Achieve.com (NMLS #138464) and Achieve Loans are both wholly owned subsidiaries of Achieve Company. Because of this relationship, your referral to Achieve Loans may provide Achieve.com a financial or other benefit. Where permitted by applicable state law, Achieve Loans charges: 1) an origination fee of up to 4.0%, and 2) an underwriting fee of $725. You are NOT required to use Achieve Loans for a home equity line of credit.