If you’re seeking relief from debt payments, debt consolidation could be the answer. Taking out a home equity line of credit allows you to tap into the value of your home in order to withdraw a sum of money that can then be used to pay off other lines of debt. In doing so, you’re creating a situation in which you only have to make one payment a month to cover all of your debts. While this seems like an easy decision, there are some pros and cons to this approach.

Once you’ve decided whether or not to use your home’s equity to complete debt consolidation, you’ll have to decide whether you want to take out a home equity loan or to establish a home equity line of credit. While they sound very similar, there are actually several distinct differences that can majorly affect pay off times and amounts.

Home Equity Loan


A home equity loan is like taking out a second mortgage on your home. It is based on the current value of your home and comes with a fixed interest rate and a repayment schedule. This can be an excellent choice for debt consolidation because the payments will always be consistent, and thus, easier to budget for, and you’ll know the exact date that your home equity loan will be paid off, whereas with credit cards, it can feel like you’ll never get ahead. Home equity loans generally have a lower interest rate than most credit cards. The current average APR for credit cards is around 15.08%, while a home equity line of credit sits around 5%.

Home Equity Line of Credit


Home equity lines of credit, on the other hand, are also second mortgages, but they are structured more like a credit card and less like another mortgage. Unlike a home equity loan, you’ll get a card that’s linked to an account in your name, instead of a lump sum of cash. In this situation, you’ll only pay interest on the money that you use from the account. The interest rate on these accounts are often much lower than a typical credit card rate.

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