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shutterstock_180918242 (3)Credit cards. Student loans. Car payments. When the bills are piling up, it’s easy for payments to slip through the cracks and even easier to forget about them altogether.

But there’s good news: Consolidating your debt can help you take control of your finances.

If you own a home, you might be able to use a home equity line of credit (HELOC) to consolidate your debt. A HELOC is a secure, flexible way to help make repaying your debt more manageable — and potentially more affordable.

What is a HELOC?

Think of a HELOC as a secured line of credit that lets you borrow funds based on the amount of equity you’ve built in your house. Here’s how it works:

  • You can potentially borrow as much as 85 percent of the appraised value of your home, subtracting what you still owe on your mortgage, and you can borrow this amount for the length of your HELOC term.
  • Once approved for a total amount, you can use these funds all at once or a little over time — it’s up to you.
  • The term and payment structure of your HELOC is set by your lender. Often, you’ll only pay interest on the amount you choose to use during the term of your HELOC.
  • After the draw period ends, the repayment period will begin. During this time, you’ll no longer be able to draw money from your HELOC and you’ll need to pay back both the principal and interest from your HELOC.

Tip: Pay off your debt faster with these 5 ways to save hundreds at home.

People use HELOCs to pay for all types of expenses, including renovations, repairs, buying appliances, upgrading their furniture and more.

How can I use a HELOC to consolidate my debt?

Once you’re approved for your HELOC, you can use the funds to pay off other debts. This can be especially helpful if you’re currently paying off more than one high-interest debt. There are several potential benefits to this approach:

  • You may save on interest. Many types of debt, such as credit card debt, may have higher interest rates. The interest rates on HELOCs are variable and your HELOC interest rate may be lower than the interest you’re currently paying on other debt.
  • You’ll have fewer monthly payments. One advantage of consolidating your debt is shrinking the size of your monthly bill pile. Instead of juggling multiple payments, you’ll only have to focus on paying off your HELOC if you are able to consolidate all your debt. Not only is this more convenient, it’s easier to remember what you need to pay and when. This can help you avoid late payments and the hefty fees that come with them.
  • You might save on taxes. Unlike other types of debt, a HELOC puts your interest to work for you. Similar to your mortgage interest, the interest on a HELOC may be tax deductible. The amount of interest you pay annually is potentially deductible when you file your taxes at the end of the year.

What should I do next?

If you think using a HELOC for debt consolidation might be right for you, here are your next steps:

  1. Run the numbers. Take a detailed look at your finances and outstanding debt. Add up your total debt to get a sense of what size HELOC you might need. 
    Tip: This calculator tool can help determine whether you’ll save money by consolidating your debt.
  1. Do your homework. Make sure you understand the different rates and fees, as well as closing costs and repayment requirements. Come prepared with questions to ask a loan officer about a HELOC.
  2. Apply. Lenders will look at your credit history, income and more to determine your ability to repay. Also, you’ll typically need to own at least 20 percent of your home before you can qualify.


Learn more about the benefits of a HELOC and how it can help you consolidate debt.

Looking for more information about mortgages, refinancing or ways to make valuable home improvements? See our special offers available on our mortgages and home lending page.

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Banking products and services are subject to bank and credit approval.  BMO Harris Bank N.A. Member FDIC.

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