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?
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