Last updated: June 2025
If you’re managing multiple sources of debt—whether personal credit cards, personal loans, or small business obligations—it quickly becomes challenging to juggle high-interest debt across different areas of your life.
The good news? If you own your home and have built up equity, you may have a powerful solution already in your hands: a home equity line of credit to consolidate debt.
This article explores how to use a HELOC to consolidate both personal and business debts, how it works, the benefits and risks, and the steps to take to do it effectively.
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Understanding how a HELOC works
A HELOC is a revolving line of credit backed by your home’s equity, which is determined by deducting the remaining mortgage from the property’s current value.
For example, if your home is worth $400,000 and you owe $250,000, you likely have around $150,000 in equity.
Depending on factors like credit, income, and loan-to-value ratio, lenders such as HomeEQ may permit borrowing up to 85% of your property’s value.
Features of HELOC that benefit debt consolidation
- Flexible draws: Borrow only what you need, when you need it.
- Interest-only payments: During the draw phase, usually lasting 5 to 10 years, payments often cover interest only.
- Lower interest rates: compared to credit cards and unsecured loans
Unlike lump-sum home equity loans, HELOCs operate like credit cards with a revolving balance.
Can a HELOC be used for debt consolidation?
Yes, and that’s one of the most common use cases. There are no restrictions on how you use HELOC funds, which means you can apply them toward paying off:
- Personal credit cards
- Personal loans or medical bills
- Business-related debts, such as vendor bills or a small business credit line
- Consolidated obligations in both categories
Using a HELOC to consolidate high-interest debt into one lower-interest account can reduce financial stress, simplify payments, and lower your monthly obligations.
Pros of using a HELOC to consolidate personal and business debt
Consolidating business and personal debt using a HELOC has several advantages.
Lower interest rates
HELOCs are secured by your home, making them significantly cheaper than unsecured credit card debt or business loans.
Single payment strategy
Managing one monthly payment is easier than juggling multiple minimums.
Improved credit score
Paying off high-utilization credit cards may increase your credit score over time.
Tax benefits
If the HELOC funds are used for business or qualifying home improvements, some interest may be tax-deductible (consult a tax professional).
Ongoing access
Even after paying down the balance, your HELOC remains open during the draw period for future use.
Considerations and risks before using a HELOC for consolidation
Despite its advantages, using a home equity line of credit to consolidate debt comes with serious responsibilities.
You’re putting your home on the line
Defaulting on a HELOC can lead to foreclosure.
Variable interest rates
Most HELOCs have adjustable rates. Your payment could increase over time.
Potential to reaccumulate debt
Paying off credit cards only to charge them back up creates a deeper hole.
Blending personal and business expenses
This can complicate your taxes and budgeting if not tracked correctly.
Draw period and repayment terms
Once the draw period ends, your HELOC enters the repayment phase, often with fully amortized monthly payments.
Be sure you understand your terms and have a plan to pay off or manage your HELOC responsibly.
Real-world example: Consolidating smart across life and business
Hypothetical scenario: Lena, a freelance graphic designer in Georgia, owns a home valued at $420,000. Her remaining mortgage balance is $250,000, leaving her with $170,000 in equity. She has $25,000 in credit card debt from personal expenses, a $15,000 personal loan, and a $10,000 line of credit tied to her design studio.
Using HomeEQ, Lena applies for a $100,000 HELOC. She draws $50,000 to pay off all three debts, consolidating them into one lower-interest loan. She keeps the remaining $50,000 available as a reserve and tracks her business-related uses separately for tax purposes. Her new monthly payment is lower, and the flexible repayment structure gives her breathing room.
How to use your HELOC for effective debt consolidation
- List and categorize all current debts: Inventory all your personal and business debts. Note the balances, minimum payments, and interest rates.
- Calculate your available equity: Use a HELOC calculator or speak to a HomeEQ representative to estimate how much you may qualify for based on your home’s current value. Use the HomeEQ HELOC calculator.
- Prioritize high-interest debt: Target the most expensive debts first, starting with those carrying the highest interest rates.
- Track usage and keep records: If you use the HELOC to pay business-related expenses, keep a clear log. This will help with budgeting and potential tax deductions.
- Create a repayment plan: Use the draw period to reduce your balance while the interest-only payments are low. Plan for how you’ll manage payments when the repayment phase begins.
- Avoid new debt: Once you consolidate, freeze or limit spending on the accounts you’ve paid off. Your goal is to pay down, not reaccumulate, debt.
FAQs about using a home equity line of credit to consolidate debt
Is it legal to use a HELOC for business debt?
Yes. HELOCs are flexible and can be used for both personal and business purposes as long as the property used for collateral qualifies.
Will opening a HELOC hurt my credit score?
Initially, applying for a HELOC may result in a slight decrease in your credit score due to a credit inquiry. However, paying off revolving debt may improve your score over time.
Is HELOC interest tax-deductible for business use?
In many cases, yes. If you use the HELOC for business-related purposes, the interest may be deductible. Consult a CPA for guidance.
Can I use my HELOC for future expenses after paying off debt?
Yes. As long as you’re in the draw period, you can use your HELOC repeatedly up to the limit.
Final thoughts: Smart debt management through home equity
A home equity line of credit (HELOC) to consolidate debt helps streamline your finances, reduce monthly costs, and tap into lower interest rates.
The key is to use this tool with discipline. A HELOC is not a cure-all—it’s a strategy.
Consolidate what you owe, track your usage carefully, and set a clear repayment timeline. Most importantly, protect your home by avoiding overleveraging or excessive borrowing.
HomeEQ’s digital-first HELOC platform makes it easy to apply, get approved, and start taking control of your finances—all without leaving your home.
Ready to consolidate debt the smart way?
Check your rate online—no impact on your credit score. Apply for a HELOC now through HomeEQ.
