Home equity loan for debt consolidation

If you’re struggling to pay off credit cards or other high–interest debt, you certainly aren’t alone. In Q1 2026, consumer credit card debt hit a record high of $1.25 trillion, with the average American carrying $6,595 in credit card debt. Credit cards come with high borrowing costs and compounding interest. This means the amount you owe can quickly accumulate, making it difficult for many people to pay down.

According to a June 2026 Rocket Mortgage study, 55% of Americans have lost sleep over credit card debt. If you have equity in your home, you can save money by consolidating high–interest debt with a lower–cost home equity loan¹. This strategy can help you get out from under credit card debt and save money on interest, but it’s important to understand the risks of using your home as collateral. Here’s a closer look at how borrowing against your home's equity works, the pros and cons to weigh, and the alternative options to help you decide if this is the right financial move for you.

Key takeaways:

• A home equity loan lets you borrow a lump sum of cash with a fixed interest rate and predictable monthly payments, which allows you to pay off multiple high–interest debts.
• Using home equity replaces unsecured debt with secured debt, which can help you get a lower interest rate on your existing debt.
• Because your home is the collateral, you could face foreclosure if you cannot keep up with your second mortgage payments.

Using a home equity loan to pay off debt

A home equity loan is a second mortgage that uses your home equity as collateral to let you borrow a lump sum of cash. Equity is the amount your home is worth minus what you still owe on the mortgage. By using your home equity as collateral, you can get access to lower interest rates than credit cards and other types of loans. You can use the funds you receive any way you like and repay the loan with a fixed interest rate and predictable monthly payments.

How does debt consolidation work with a home equity loan?

Consolidating debt is a way to pay off your existing debt in a more manageable structure with a lower interest rate. Once your lender approves your home equity loan and you close on the transaction, they will send you a lump–sum payment. You can take that cash and use it to pay off your high–interest creditors in full, bringing those balances down to zero.

Many credit cards have double–digit interest rates, which means your balance can quickly accumulate, and it can become overwhelming to pay off. According to June 2026 data, the average APR on a credit card is 21%², while the average APR on a home equity loan is 9%³.

Using the money you borrow with a home equity loan to pay off your debts and consolidate them into a single loan payment can allow you to pay it off faster, pay less interest, and reduce your debt–to–income ratio.

Instead of having to make multiple credit card payments each month, you’ll be responsible for your primary mortgage and your second mortgage payment. However, because your home serves as collateral, it’s important to be sure that you can afford both mortgage payments. If you’re unable to keep up with the payments, you could lose your home to foreclosure.

Rocket Mortgage offers home equity loans for primary and secondary homes.

What debts can you consolidate with a home equity loan?

The best debts to consolidate are those carrying high interest rates. Debts that may be well–suited for consolidation with a home equity loan include:

• High–interest credit card balances
• High–rate personal loans
• Outstanding medical bills

Debts to avoid consolidating with home equity

While consolidation can be a helpful financing tool, there are cases where it might not make sense to use your home equity to deal with debt. Debts to avoid consolidating with home equity include:

• Federal student loans: Consolidating them into a private home equity loan permanently strips away federal protections like income–driven repayment plans, deferment options, and loan forgiveness programs.
• Auto loans: Cars depreciate quickly, which means that the car’s value could drop below your loan balance and you’d end up owing more than the car is worth.
• Vacations: If you need to tap into your home equity to pay for a luxury expense like a vacation, it may mean you’re spending beyond your means.

Pros and cons of using home equity to consolidate debt

Before accessing your home equity, it’s important to understand all the tradeoffs to using a home equity loan to consolidate debt.

Pros

Advantages of using a home equity loan for debt consolidation include:

• Lower interest rates. Because your home is collateral for a home equity loan, you’ll get access to a lower interest rate than an unsecured loan.
• Flexible credit score requirements. Since you borrow your equity, you don’t need a sky–high credit score to get a home equity loan. The minimum required credit score will vary depending on the loan and lender.
• Fixed payments and terms: Your monthly payment and your interest rate remain completely fixed for the lifespan of the loan, providing budget stability and a clear end date for your debt.
• Credit score boost: Consolidating high–utilization revolving debt can lower your credit utilization ratio, which may improve your credit score over time.
• Possible tax breaks: The interest you pay on a home equity loan may be tax–deductible.

Cons

Beware of the disadvantages to using a home equity loan for debt consolidation:

• You risk losing your home if you default: You’re using your home as collateral, so your lender could foreclose on your home if you don’t repay your loan as scheduled.
• Upfront costs: Just like your primary mortgage, a second mortgage requires you to pay closing costs. These fees include the appraisal and loan origination fees and can typically range from 2% – 5% of the total loan amount.
• You stretch your timeline: By adding a second mortgage, you take on more overall debt and may extend the amount of time it takes to pay off your original mortgage.
• Risk of overspending: Your spending habits might be the problem if you pay off your credit cards with a loan, only to run the card balances back up again.

How debt consolidation may affect your credit

Initially, applying for the loan will trigger a hard credit inquiry, which may drop your score by a few points. However, the long–term impact is generally positive.

Your credit utilization ratio is a figure that reflects how much credit you are using compared to your total available limits. This figure plays a big role in your overall credit score. By using a home equity loan to instantly pay off credit cards, your credit utilization ratio drops, which can provide a substantial boost to your overall credit health over time.

Home equity loan debt consolidation example

Let’s look at how you can consolidate your debt with a home equity loan. To see if this strategy is a good idea for you, calculate your current debt obligations and weight those numbers against what your new monthly payment would be.

Compare your current debt payments

Imagine you currently have $50,000 in credit card debt spread across four different cards. The average interest rate on those cards is 22%. If you only make a combined minimum payment of roughly $1,200 a month, it will take you almost seven years to pay off. You will also pay over $45,000 in interest alone.

Estimate your new monthly payment

Suppose you borrow $50,000 against your home at a fixed interest rate of 8% with a 10–year repayment term. You use that lump sum to completely pay off those credit cards. Your new monthly payment for the home equity loan will be approximately $606 per month.

By consolidating, you immediately free up roughly $594 in your monthly budget while simultaneously establishing a concrete, 10–year path to eliminating that debt entirely. You will also pay just under $23,000 in interest, which would save you about $22,000.

Who’s eligible for a home equity debt consolidation loan?

Before approving a home equity loan, your lender will calculate your equity and review your credit score and DTI ratio. Requirements vary, but expect to need at least:

• Minimum credit score of 680
• Debt–to–income ratio (DTI) of 43% or less
• Proof of income
• At least 15% – 20% equity
• Proof of homeowners insurance
• Solid payment history on your primary mortgage
• A home appraisal

How much can you borrow with a home equity loan?

How much you can borrow with a home equity loan depends on the lender and the amount you have in equity. Lenders typically allow you to borrow up to 75% – 85% of your equity. You can use the home equity calculator from Rocket Mortgage to estimate your equity.

Should you use a home equity loan to consolidate debt?

For most people, their home is their most valuable possession. You may work 15 – 30 years to pay it off, so be careful when deciding if a home equity loan is a good idea. Think carefully about the ultimate purpose a home equity loan for debt consolidation would serve. Consider your future goals, other financial aspirations, and whether you plan to own your home long–term.

When a home equity loan may make sense

Using a home equity loan for credit card debt makes sense if the new interest rate is significantly lower than your current rates, the upfront closing costs do not wipe out your projected interest savings, and you have a disciplined plan to permanently curb the spending habits that created the debt in the first place.

When to consider another debt consolidation option

Most importantly, you’ll need to confirm that you can keep up with the monthly payments on a second mortgage. Otherwise, you could risk losing your home. If your equity isn't high enough, your credit score isn’t great, or your spending habits are the root of the problem, you should likely choose a different path. Exploring unsecured alternatives will give you peace of mind without risking foreclosure.

How to apply for a home equity loan to consolidate debt

Once you’ve decided to take equity out of your home, follow these steps.

1.  Evaluate your debt

Make a list of all your different debts and make note of which ones have particularly high interest rates. Write down the total balance, the interest rate, and the minimum monthly payment for each. Add them up to find the exact lump sum you need to borrow.

2.  Determine how much equity you have

Before you apply for a second mortgage, it’s important to calculate your home equity. Do this by subtracting the amount you still owe on your mortgage from the current value of your home. Most lenders only allow you to borrow 75% – 85% of your home’s value minus how much you owe on your primary mortgage.

3.  Check your credit

A high credit score can help borrowers get a second mortgage with more favorable terms. If you don’t meet the minimum credit score for a home equity loan, talk with your mortgage lender or take steps to raise your score.

4.  Compare loan options

Compare home equity loan offers from different lenders and choose the one with the best terms, such as interest rate, monthly payment, and length of repayment. Consider working with a financial advisor to choose the best path for you.

5.  Apply and use the funds to pay creditors

Submit your application and required income documentation. Once your loan is approved and funded, immediately use the lump sum to pay off your targeted creditors in full before you are tempted to spend the cash elsewhere.

Alternatives to using a home equity loan as a debt consolidation loan

Here’s a look at some alternatives to a home equity loan if you need to consolidate debt.

Home equity line of credit

A home equity line of credit is like a home equity loan, but you receive a line of credit instead of a lump sum. With a HELOC, you can borrow up to 85% of your home’s value minus the amount you owe on your primary mortgage. A HELOC is like a credit card in that you can carry a balance from month to month. Unlike a credit card, you can make interest–only payments during the initial draw period.

Most HELOCs have a variable interest rate and may be preferable to a home equity loan because you don’t have to use the entire amount. You pay interest only on the amount you borrow, not the total line of credit. Consider all the pros and cons of HELOCs before applying.

Rocket Mortgage doesn’t currently offer HELOCs.

Cash–out refinance

A cash–out refinance⁴ offers some of the same benefits as a home equity loan. You’ll take out a new primary mortgage based on the current value of your home, use the proceeds to pay off your current mortgage, and keep the difference. You repay what you’ve borrowed with your new mortgage payment.

A cash–out refinance can be a wise debt consolidation strategy because it’s based on your primary mortgage and poses less risk to your lender. As a result, you’ll get a low mortgage rate relative to most other options. On the downside, you’ll have to pay closing costs for a cash–out refinance.

Personal loan

The interest rate on personal loans is lower than on credit cards but higher than a primary mortgage. If your personal loan is unsecured, the rate you get will depend on your credit profile and financial history.

Look for a personal loan without a prepayment penalty so you can wipe out the debt sooner if you can. Also, if you extend personal loan payments past your designated repayment period, you’ll pay additional interest.

No–interest balance–transfer card

A zero–percent interest balance–transfer card allows you to move your existing credit card debts to a new card that charges no interest for a specific period. This period usually lasts 12 – 18 months, so make sure you can pay off your debts before this period ends. You may be required to pay a transfer fee on some cards, so double–check the loan conditions.

401(k) loan

A 401(k) loan allows you to borrow from your retirement savings. A 401(k) is an employer–sponsored savings plan that sets aside pre–tax dollars from your paycheck for retirement. A 401(k) loan is still a loan, which means you’ll have to repay what you borrow plus interest no more than 5 years after taking out the loan.

A 401(k) loan doesn’t affect your credit score, but failing to repay it could leave you in more debt than when you started. You could risk your retirement savings and be subject to tax penalties if you can’t repay what you borrow.

FAQs

Here are the answers to some frequently asked questions about home equity loans.

Is a home equity loan good for debt consolidation?

Yes, a home equity loan can be a helpful way to consolidate debt if you have high–interest credit card debt, sufficient equity, and the financial discipline to not rack up new debt. It can give you the ability to lower the interest rate on your debt and provides a fixed, predictable monthly payment.

How can I get out of $30,000 credit card debt?

The fastest way to get out of $30,000 in credit card debt is typically consolidation. By using a home equity loan, a personal loan, or a 0% balance transfer card, you can stop the bleeding caused by high APRs. Consolidation can help you lower your interest rate, allowing your monthly payments to reduce the principal balance rather than just treading water.

What’s better for paying off debt: a home equity loan or HELOC?

A home equity loan is generally better for paying off a known, specific amount of existing debt because it provides a predictable, fixed interest rate and a guaranteed payoff schedule. A HELOC is better suited for ongoing, unpredictable expenses, as its variable interest rates can make budgeting for debt payoff much harder.

The bottom line

Debt consolidation with a home equity loan can be a useful tool to help you break the cycle of high–interest debt. By leveraging the equity you have built in your home, you can secure a much lower interest rate, replace multiple credit card bills with one stable monthly payment, and chart a clear, fixed timeline to eliminate your debt.

It’s important to be aware that your home is the collateral, so failing to make your new payments puts your house at risk of foreclosure. Compare the potential long–term interest savings against the upfront closing costs, consider your payoff timeline, and explore alternatives like personal loans or balance transfer cards before taking the leap.

¹ Home Equity Loan Product is a second standalone lien and may not be used for piggyback transactions. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Not available on Ameriprise products. Additional restrictions, terms, and conditions apply. Must meet qualification requirements. This is not a commitment to lend.

² Based on Federal Reserve data, June 2026

³ Based on Rocket Mortgage data, June 2026

⁴ Refinancing may increase finance charges over the life of the loan.