[HELOC vs Personal Loan](/blog/heloc-vs-personal-loan-comparison) for Debt Consolidation: Which Saves More Money in 2026?

If you're drowning in high-interest [credit card debt](/blog/heloc-vs-credit-card), consolidating multiple debts into a single, lower-interest payment can save thousands of dollars and help you become debt-free faster.

Two popular consolidation options are home equity lines of credit (HELOCs) and personal loans. But which one saves you more money? The answer depends on your specific situation, credit profile, and financial goals.

This comprehensive comparison breaks down the real costs, benefits, and drawbacks of each option so you can make the right decision in 2026.

Quick Comparison Overview

Bottom line: HELOCs typically offer lower interest rates but come with home foreclosure risk and variable rates. Personal loans provide predictability and no collateral risk but usually cost more.

Interest Rate Comparison (2026)

The most important factor in debt consolidation is the interest rate—a lower rate means less money paid over time.

HELOC Rates

2026 Average Rates:

• Excellent credit (740+): 7.5%-8.25%
• Good credit (680-739): 8.25%-9.0%
• Fair credit (620-679): 9.0%-9.5%

Variable Rate Risk: HELOCs have variable rates tied to the prime rate. If the Federal Reserve raises rates, your HELOC rate increases.

Example:

• Starting rate: 8.0%
• Prime rate increases 1%
• New rate: 9.0%
• Monthly payment on $50,000 increases by ~$42

[Personal Loan Rates](/blog/heloc-vs-personal-loan)

2026 Average Rates:

• Excellent credit (740+): 8.5%-12%
• Good credit (680-739): 12%-16%
• Fair credit (620-679): 16%-18%
• Poor credit (580-619): 18%-24%

Fixed Rate Benefit: Personal loan rates are fixed for the life of the loan—your rate never changes, providing payment predictability.

Rate Comparison Impact

Example: $40,000 debt consolidation, 5-year payoff

HELOC at 8.0%:

• Monthly payment: $811
• Total interest paid: $8,660
• Total repaid: $48,660

Personal Loan at 12.0%:

• Monthly payment: $889
• Total interest paid: $13,340
• Total repaid: $53,340

Savings with HELOC: $4,680 over 5 years

For borrowers with good credit and home equity, the HELOC saves significantly.

Cost Breakdown: Real-World Scenarios

Scenario 1: Excellent Credit, Large Debt

Debt to consolidate:

• Credit Card 1: $15,000 at 24.99%
• Credit Card 2: $10,000 at 21.99%
• Credit Card 3: $8,000 at 19.99%
• Personal Loan: $7,000 at 16.5%
• Total debt: $40,000

Option 1: HELOC at 7.75%

• Monthly payment: $808
• Total interest (5 years): $8,480
• Total repaid: $48,480

Option 2: Personal Loan at 9.5%

• Monthly payment: $837
• Total interest (5 years): $10,220
• Total repaid: $50,220

Winner: HELOC saves $1,740

Scenario 2: Good Credit, Moderate Debt

Debt to consolidate:

• Credit Card 1: $8,000 at 22.99%
• Credit Card 2: $6,000 at 20.99%
• Medical Debt: $4,000 at 0% (payment plan)
• Total debt: $18,000

Option 1: HELOC at 8.5%

• Monthly payment: $368
• Total interest (5 years): $4,080
• Total repaid: $22,080

Option 2: Personal Loan at 13.5%

• Monthly payment: $411
• Total interest (5 years): $6,660
• Total repaid: $24,660

Winner: HELOC saves $2,580

Scenario 3: Fair Credit, High-Interest Debt

Debt to consolidate:

• Credit Card 1: $12,000 at 27.99%
• Credit Card 2: $5,000 at 24.99%
• Store Card: $3,000 at 29.99%
• Total debt: $20,000

Option 1: HELOC at 9.25%

• Monthly payment: $415
• Total interest (5 years): $4,900
• Total repaid: $24,900

Option 2: Personal Loan at 17.5%

• Monthly payment: $502
• Total interest (5 years): $10,120
• Total repaid: $30,120

Winner: HELOC saves $5,220

Pros and Cons

HELOC Advantages

1. Lower Interest Rates Typically 2-5% lower than personal loans, saving thousands in interest.

2. Flexible Access to Funds Draw only what you need, when you need it during the draw period.

3. Potential Tax Deduction If used for home improvements, interest may be tax-deductible (consult a tax professional).

4. Higher Borrowing Limits Access $25,000-$500,000+ based on your home equity.

5. Longer Payoff Timeline More time to repay reduces monthly payment pressure.

HELOC Disadvantages

1. Home at Risk Your home is collateral—default and you could face foreclosure.

2. Variable Interest Rates Rates can increase, raising your monthly payments unpredictably.

3. Longer Approval Process Applications take 2-6 weeks with appraisals and underwriting.

4. Closing Costs Appraisal fees ($400-$600), origination fees (0-2% of credit line), and other costs can add up.

5. Temptation to Overspend Easy access to funds can lead to accumulating more debt.

Personal Loan Advantages

1. Fixed Interest Rate Your rate and payment never change—complete predictability.

2. No Collateral Required Your home isn't at risk if you can't pay.

3. Fast Approval Get approved and funded in 1-7 days, sometimes same-day.

4. Forced Repayment Schedule Fixed term ensures you're debt-free on a specific date.

5. No Closing Costs Most personal loans have no or minimal fees.

Personal Loan Disadvantages

1. Higher Interest Rates Typically 2-8% higher than HELOCs for similar credit profiles.

2. Strict Income Verification Must prove ability to repay through income documentation.

3. Lower Borrowing Limits Maximum amounts usually top out at $50,000-$100,000.

4. Shorter Terms 2-7 year terms mean higher monthly payments than longer HELOC terms.

5. No Tax Benefits Interest is never tax-deductible.

When to Choose a HELOC

A HELOC makes the most sense if you:

1. Have Significant Home Equity Need at least 15-20% equity (80-85% combined loan-to-value).

2. Want the Lowest Interest Rate Saving money on interest is your top priority.

3. Have Excellent to Good Credit Credit score 680+ qualifies for best rates.

4. Can Handle Variable Rates You have financial cushion to absorb potential rate increases.

5. Need a Larger Amount Consolidating $30,000+ in debt.

6. Want Flexible Access May need to tap funds again in the future.

7. Are Disciplined Won't be tempted to rack up more debt with easy access to credit.

Example: "Sarah has $45,000 in credit card debt at an average 23% APR. She has $200,000 in home equity and excellent credit (750). A HELOC at 7.75% will save her over $20,000 in interest compared to her current debt and thousands more than a personal loan."

When to Choose a Personal Loan

A personal loan is better if you:

1. Don't Want to Risk Your Home The security of no collateral is worth a higher rate.

2. Prefer Fixed Payments Budget certainty is more important than the lowest possible rate.

3. Need Money Quickly Can't wait 2-6 weeks for HELOC approval and funding.

4. Lack Sufficient Equity Don't have 15-20% equity in your home.

5. Have Lower Credit Scores HELOC approval is uncertain with credit below 680.

6. Want Forced Discipline Fixed term ensures you'll be debt-free on schedule.

7. Consolidating Smaller Amounts Debt under $25,000 may not justify [HELOC closing costs](/blog/heloc-closing-costs-breakdown).

Example: "Mike has $18,000 in credit card debt but only $30,000 in home equity. He prefers not to risk his home and values predictable payments. A 5-year personal loan at 11.5% costs more in interest than a HELOC would, but gives him peace of mind and a firm payoff date."

Special Considerations

Tax Deductibility

HELOC Interest: Under current tax law (Tax Cuts and Jobs Act), HELOC interest is only deductible if funds are used to "buy, build, or substantially improve" your home.

For debt consolidation: Interest is NOT deductible.

Exception: If you use a HELOC to consolidate debt AND make qualifying home improvements with the same HELOC, you may deduct the portion used for improvements.

Personal Loan Interest: Never tax-deductible, regardless of use.

Bottom line: Don't choose a HELOC solely for tax benefits when consolidating debt—the deduction likely doesn't apply.

Credit Score Impact

HELOC:

• Hard inquiry when applying (-3 to -5 points temporarily)
• Reduces credit utilization on cards (positive impact)
• Adds installment loan to mix (positive)
• On-time payments improve score over time

Personal Loan:

• Hard inquiry when applying (-3 to -5 points temporarily)
• Reduces credit utilization on cards (positive impact)
• Adds installment loan to mix (positive)
• Faster payoff timeline can improve score sooner

Both options similarly impact your credit score.

Closing Costs and Fees

HELOC Costs:

• Appraisal: $400-$600
• Application fee: $0-$500
• Origination fee: 0-2% of credit line
• Annual fee: $0-$100
• Total: $500-$3,000+ upfront

Some lenders waive fees for balances over $50,000 or during promotions.

Personal Loan Costs:

• Origination fee: 1-6% of loan (often deducted from proceeds)
• Application fee: Usually $0
• [Prepayment penalty](/blog/dscr-loan-prepayment-penalty): Rare but check terms
• Total: $0-$3,000 (deducted from loan amount)

Fee impact example ($40,000 consolidation):

HELOC:

• Fees paid upfront: $1,200
• Borrow: $40,000
• Total out-of-pocket: $1,200

Personal Loan:

• 3% origination fee: $1,200
• Funds received: $38,800
• Must borrow $41,237 to net $40,000 after fees

Payoff Flexibility

HELOC:

• Draw period (typically 10 years): Pay interest only or more
• Repayment period (10-20 years): Pay principal + interest
• Can pay off early with no penalty (usually)
• Can redraw funds during draw period

Personal Loan:

• Fixed payment every month for entire term
• Some loans allow early payoff without penalty
• Cannot redraw—once paid, it's closed

Hybrid Strategy: Using Both

For some borrowers, combining both options makes sense:

Strategy:

1. Use personal loan for immediate consolidation
2. [Apply for HELOC](/blog/heloc-application-process-step-by-step) over next 2-3 months
3. Once HELOC approved, pay off personal loan
4. Enjoy lower HELOC rate for long-term payoff

When this works:

• Need money NOW (personal loan)
• Want lower rate eventually (HELOC)
• Willing to pay extra for fast initial consolidation

Cost example:

• Personal loan at 13%: 3 months of payments
• Pay off with HELOC at 8%: Remaining 57 months
• Slight extra interest for 3 months, but much better than 60 months at 13%

Alternatives to Consider

Before committing to either option, consider:

1. Balance Transfer Credit Card

How it works: Transfer balances to 0% intro APR card.

Pros:

• 0% interest for 12-21 months
• No collateral risk
• Fast approval

Cons:

• 3-5% transfer fee
• Rate jumps to 18-25% after promo ends
• Limited transfer amounts

Best for: Smaller debts you can pay off within promo period.

Learn more about balance transfer vs HELOC strategies.

2. Debt Management Plan (DMP)

How it works: Non-profit credit counseling agency negotiates with creditors.

Pros:

• Lower interest rates (often 6-10%)
• Single monthly payment
• No new borrowing required

Cons:

• Closes credit card accounts
• Damages credit short-term
• Not all creditors participate

Best for: Those who can't qualify for HELOC or personal loan.

3. [Cash-Out Refinance](/blog/cash-out-refinance-guide)

How it works: Refinance mortgage for more than you owe, taking difference in cash.

Pros:

• Lowest interest rates (6.5-7.5% in 2026)
• Tax-deductible interest
• Long repayment term

Cons:

• High closing costs ($3,000-$8,000)
• Extends your mortgage
• Only makes sense if refinancing is already beneficial

Best for: Those refinancing anyway who want to consolidate large debts.

See our guide on cash-out refinance vs HELOC.

How to Decide: Decision Framework

Use this framework to choose:

Step 1: Calculate Total Cost Get quotes for both options and calculate total interest paid over the full term.

Step 2: Assess Risk Tolerance How comfortable are you risking your home for lower rates?

Step 3: Evaluate Financial Stability Can you handle potential HELOC rate increases?

Step 4: Consider Timeline Do you need funds immediately (personal loan) or can you wait (HELOC)?

Step 5: Calculate Break-Even Factor in HELOC closing costs—how long until lower rates offset upfront fees?

Example:

• HELOC saves $100/month in interest
• HELOC costs $1,500 in closing fees
• Break-even: 15 months

If you'll keep the debt for more than 15 months, HELOC wins.

Application Tips

For HELOC Applications:

Improve approval odds:

• Maintain credit score above 680
• Debt-to-income ratio below 43%
• Document stable income
• Get home appraisal before applying (if recent comps are strong)

Documents needed:

• Proof of income (pay stubs, tax returns)
• Property documents (deed, insurance)
• List of debts being consolidated
• Bank statements

For Personal Loan Applications:

Improve approval odds:

• Apply with creditworthy co-borrower
• Show low debt-to-income ratio
• Highlight stable employment history
• Pre-qualify with multiple lenders (doesn't hurt credit)

Documents needed:

• Proof of income
• Identification
• Recent bank statements
• List of debts

The Bottom Line

Choose a HELOC if:

• You have significant home equity (20%+)
• Your credit score is 680+
• You want the lowest possible interest rate
• You can handle variable rates
• Consolidating $25,000+
• You're financially disciplined

Typical savings: $3,000-$8,000 over 5 years vs personal loan

Choose a Personal Loan if:

• You prefer fixed payments
• You don't want to risk your home
• You need funds quickly
• You have limited home equity
• Consolidating under $25,000
• You want guaranteed debt-free date

Typical cost: 2-6% higher rate than HELOC but no collateral risk

For most people with good credit and home equity: HELOCs save more money, but personal loans provide more security and predictability.

Whichever option you choose, the key is using it to pay off high-interest debt and not accumulating more—both options only work if you change the spending habits that led to debt in the first place.

Related Articles

• HELOC for Debt Consolidation Complete Guide
• [[HELOC vs Cash-Out Refinance](/blog/heloc-vs-cash-out-refinance-2026) Comparison](/blog/heloc-vs-cash-out-refinance-2026)
• Balance Transfer vs HELOC Analysis
• How to Qualify for a HELOC
• Best Personal Loan Lenders 2026