The people's voice of reason
The people's voice of reason
High-interest debt can be difficult to get ahead of, especially when there are credit card balances involved. Federal Reserve data shows more than $1 trillion in revolving credit card debt is currently outstanding across U.S. households, so you’re far from alone if you’re looking for ways to manage large balances.
If you own your home, the equity you’ve built may provide a way to address those balances. Using home equity to pay off debt entails accessing a portion of your home’s value and using those funds to eliminate higher-interest obligations, such as credit card debt or medical bills.
There is more than one way to accomplish this, including one method that doesn’t add a monthly payment. If you’re considering different ways to put your home equity to use, this guide from Splitero explains how using home equity to pay off debt works, the available options, and how to decide which approach best fits your goals.
Homeowners use home equity to pay off debt because it can quickly make an impact on high-interest balances, which can be expensive to carry over time. In the first quarter of 2026, the average APR on credit card accounts was 21.52%, according to Federal Reserve data. Meanwhile, data from TransUnion shows that the average American with credit card debt carried a balance of $6,715 in the fourth quarter of 2025. Together, those figures help explain why interest charges can make it difficult to make meaningful progress on paying down balances.
For many, the goal is consolidation. Instead of managing multiple credit card balances, medical bills, or other obligations with different due dates and interest rates, they use home equity to pay them off at the same time. If you’re deciding which balances to tackle first, understanding the different types of debt and how to prioritize them can help.
This approach can simplify your finances and, in some cases, reduce how much of each payment goes toward interest. You may also be looking to improve your overall financial picture by repairing your credit and creating more room in your monthly budget.
Credit card debt is often the primary focus because it tends to carry the highest interest rates, but homeowners may also use home equity to address medical bills and other ongoing financial obligations.
The first step to using home equity to pay off debt is understanding how much equity you may be able to access. The amount you can access depends on your home’s current market value, your remaining mortgage balance, and the financing option you choose.
Home equity is simply the difference between what your home is worth and what you still owe on your mortgage. For example, if your home’s market value increases or your mortgage balance decreases, your available equity grows over time. You can calculate it by subtracting your remaining mortgage balance from your home’s estimated value.
Once you’ve determined the amount of equity in your home, you then determine the financing option that works best for your situation. The qualification requirements that you must meet in order to access your home equity will vary depending on the option you choose.
Home equity loans and HELOCs typically evaluate your credit score, debt-to-income ratio, and income history. Many lenders generally look for a credit score of at least 620, though requirements can vary by lender and program. At the same time, paying down revolving credit card balances may lower your credit utilization ratio, which can have a positive impact on your credit score over time. Results vary depending on your overall credit profile and account history.
Home equity investments use a different model. Some providers do not require income verification and may accept homeowners with lower credit scores than traditional financing options.
Once approved, you receive funds that can be used to pay off the balances you’re targeting.
Homeowners typically use one of four methods to access home equity in order to pay off debt. The biggest differences between them are whether you’ll have a monthly payment, what their requirements are, and what you provide in exchange for accessing your equity.
In general, home equity is best used on higher-interest balances that may take time to pay down on their own. For smaller balances or short-term debt that you might already be able to pay off reasonably quickly, the costs of accessing home equity may outweigh the benefit.
Home equity loan
A home equity loan provides a one-time lump sum that is repaid over a fixed term with predictable monthly payments. Homeowners often use this option when the full amount needed is known in advance, making it a common choice for consolidating multiple balances into one payment.
Approval for a home equity loan typically depends on factors such as your credit score, income, debt-to-income ratio, and available home equity. Its fixed rate and consistent payment structure can make budgeting easier, but it also means taking on a new monthly payment secured by your home.
Home Equity Line of Credit (HELOC)
A HELOC is a revolving line of credit secured by your home that lets you access your home equity up to a set limit during a draw period, then repay it over time once the draw period ends.
In practice, it works like a credit card backed by your home. Because you can draw funds as needed, some homeowners use a HELOC for expenses that may arise over time or when the amount they need is uncertain. It can also be useful for large one-time expenses that don’t typically accrue ongoing interest, such as medical bills.
That flexibility can be helpful, but because most HELOCs have variable interest rates, your payment amounts can change over time, which might make long-term budgeting less predictable. Homeowners considering this option should also be prepared to meet the qualifications for a HELOC, which typically include sufficient credit scores, adequate proof of income, and home equity requirements.
Cash-out refinance
A cash-out refinance replaces your existing mortgage with a new, larger mortgage and allows you to access a portion of your home equity as cash. Instead of adding a second loan, you refinance your primary mortgage and receive the difference between the new mortgage amount and what you currently owe.
Some homeowners use a cash-out refinance to consolidate high-interest debt because it combines everything into a single monthly payment. It can also make sense if current mortgage rates or loan terms are favorable enough to improve the overall structure of your mortgage. Because you’re replacing your existing mortgage, however, your interest rate, monthly payment, and loan term may all change. Closing costs can also be significant, so it’s important to weigh the long-term costs carefully, especially if today’s rates are higher than the rate on your current mortgage.
Home equity investment
A home equity investment (HEI), sometimes referred to as a home equity agreement, lets you access cash from your home equity without taking on a traditional loan or monthly payments. You receive a lump sum in exchange for a share of your home’s future value, which is settled when you sell, refinance, or choose to repurchase the investment.
Because there are no monthly payments and qualification requirements are often more flexible than in traditional lending, an HEI can work well for homeowners who want to address high-interest debt without adding another bill to their monthly budget. Homeowners deciding between a HELOC and a home equity investment often weigh the tradeoff between making ongoing monthly payments and sharing a portion of their home’s future value.
With an HEI, the amount you ultimately repurchase is tied to how your home’s value changes over time, which makes the outcome dependent on future market conditions.
Whether it is smart to use home equity to pay off debt depends on your situation. One important factor to consider is how it would affect your monthly budget. Home equity loans and HELOCs both add a monthly payment secured by your home. A home equity investment works differently, giving you funds upfront without monthly payments in exchange for a share of your home’s future value when the investment ends.
That structure often drives the decision. If you’re comfortable taking on a predictable monthly payment, a loan or HELOC may fit. If avoiding another ongoing bill is the priority, a home equity investment may be a better match.
These options can also depend on your financial profile. Traditional home equity loans and HELOCs typically require stronger credit, income verification, and sufficient home equity, while eligibility for home equity investments may be more flexible depending on the provider.
When deciding, it can help to focus on a few key questions:
For smaller balances or short-term debt, options like a 0% balance transfer card or an unsecured personal loan may be more cost-effective. A credit counseling or debt management plan may also be worth considering in some cases.
As with any financial decision, it’s important to weigh your options carefully and consider speaking with a financial advisor or legal professional to determine whether paying off debt using home equity fits your situation.
Can I use home equity to pay off debt with bad credit or no income?
Possibly. While home equity loans and HELOCs typically require income verification and stronger credit profiles, some home equity investment providers can pre-qualify homeowners with credit scores as low as 500 and do not require income verification.
Will paying off credit cards with home equity affect my credit score?
It can. Paying off credit card balances may lower your credit utilization ratio, which can help improve your credit score over time, though results vary.
How is using home equity different from a debt management plan or balance transfer?
Using home equity gives you access to the value you’ve built in your home, while debt management plans and balance transfer cards help you manage existing balances without using home equity. Those alternatives may work well for smaller balances, whereas home equity solutions are often better suited for larger, high-interest debt that can take years to pay off.
I just bought my home. Can I still use my equity?
Maybe. Whether you qualify depends on how much equity you’ve built, so homeowners who recently purchased may need to wait before certain options become available.
This story was produced by Splitero and reviewed and distributed by Stacker.
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