6 Times a HELOC Could Solve Your Financial Problems

This simple strategy could be an incredible lever to pull.

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Updated July 18, 2024
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A home equity line of credit (HELOC) is an extension of credit based on the amount of equity you have in your home. Due to the substantial collateral on this type of loan, the rates on a HELOC are often lower than those for personal loans and even the best credit cards.

A HELOC has two parts: the draw period and the repayment period. During the draw period (usually several years long), you make interest-only payments and can continue to borrow against the balance. 

Once that ends, the repayment period starts, when you must pay off the principal amount.

If you are a homeowner with equity, here are some ways a HELOC could help solve your financial problems.

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Consolidate high-interest debt

Wayhome Studio/Adobe family having debt problems

If you have several other loans or credit cards, a HELOC can be a convenient way to wrap all the debts into one payment with a much lower interest rate. This is, in fact, the second most common reason people get a HELOC.

Using a HELOC to consolidate debt can reduce the amount of interest you pay and improve your monthly cash flow.

As an emergency fund

Vitalii Vodolazskyi/Adobe savings in emergency fund jar

Just because you get a HELOC doesn’t mean you have to use it right away. Home equity credit lines can carry higher limits than other types of credit because they are backed by your home. 

Having access to a large amount of funds whenever you need it may provide financial security and peace of mind.

However, as with any contract, be sure to read the terms of your HELOC carefully. Some lenders charge an inactivity fee if you don’t use the HELOC. 

They make money on the interest of the credit line, so it makes sense that they would want you to use it.

Renovate or repair your home

LIGHTFIELD STUDIOS/Adobe Renovation of home

If your home needs substantial repairs or remodeling, many homeowners choose a HELOC to complete these repairs. Using your equity to improve your home is generally considered a good idea.

It’s possible that the home improvements you make can save you money on your taxes as well. If you are making energy-efficient upgrades or making medically necessary improvements to your home, you may qualify for tax deductions.

Resolve $10,000 or more of your debt

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Pay for higher education

arekmalang/Adobe asian college student

A HELOC is an option to bridge the gap of traditional financing for higher education (financial aid, scholarships, student loans, savings, etc). 

Because you can use a HELOC for any purpose, you can cover non-traditional educational expenses or other types of schooling that may not qualify for other types of aid.

You also can pay it back and continue to use the same line of credit without reapplying, as long as you’re still in the draw period.

Pay for medical expenses

cat027/Adobe stethoscope on medical billing statement

According to a 2021 Kaiser Family Foundation survey, the average cost of a hospital stay is $2,883 per day. Unfortunately, a single medical event can leave you with thousands in medical bills.

With about half of adults reporting they would need to go into debt to cover an unexpected medical expense, a HELOC can provide peace of mind to cover unexpected surprise health-related costs.

Retirement expenses

bernardbodo/Adobe couple finalising budget for vacation

Retirement accounts are typically funded with pre-tax dollars, deferring the tax you pay on that money until you withdraw it from the account. While you aren’t limited to how much you can withdraw from those accounts during retirement, you will be taxed on the amount.

A HELOC can help you avoid withdrawing money from your retirement accounts to cover expenses, thereby reducing the amount of taxes you’ll have to pay.

Bottom line

LIGHTFIELD STUDIOS/Adobe business woman consulting finance advisor

A HELOC can be a helpful financial tool, but remember that it is a debt secured by your home. If you fail to pay it back, there could be serious consequences. Your lender can foreclose on your property if you don’t pay back the borrowed money.

On the other hand, using a HELOC to take care of costly home repairs may repay you when it comes time to sell your home.

Nevertheless, be mindful of how much money you are borrowing and keep up with your payments to protect your home and its equity.

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Author Details

Holly Humbert

Holly is a writer who recognizes that there isn't a one-size-fits-all approach to personal finance. She is passionate about entrepreneurship, women in business, and financial literacy. With more than four years of experience, her work has been featured on MarketWatch and The Ways to Wealth.