Turning unsecured debt into home-secured debt: questions to ask

Thinking about using home equity to pay off credit cards or other unsecured debt? Before you turn that debt into a lien on your home, pause and ask a few questions.

First: what is the total cost—not just the new monthly payment? Compare the interest, loan term, closing costs, points, and any rate changes with the cost of your current debts. A longer term can lower the payment while increasing what you pay overall.

Second: what happens if your income changes or your home value falls? A home equity loan or HELOC uses your home as collateral. Missing payments can put the home at risk, and owing more than the home is worth can make selling or refinancing harder.

Third: is this solving the cause of the debt? Ask whether a budget, a conversation with your creditors, or nonprofit credit counseling should be considered before borrowing against the house.

Fourth: have you checked the tax treatment with a qualified tax professional? IRS guidance says interest on a home equity loan or line of credit is deductible only when the funds are used to buy, build, or substantially improve the home securing the loan, subject to other rules.

Important notes

• Educational content only; not a commitment to lend, loan estimate, approval, rate quote, tax advice, legal advice, or financial advice.
• Home equity loans and HELOCs may have different rates, terms, fees, eligibility, and repayment features. Availability depends on the lender, property, and borrower circumstances.
• Using home equity to consolidate debt can place the home at foreclosure risk if required payments are not made. No savings, approval, qualification, tax result, or outcome is guaranteed.
• Tax treatment depends on the taxpayer’s facts and applicable law. Consult a qualified tax professional; do not rely on this video for a deduction decision.