Personal Loan vs. HELOC: Which is Cheaper for Debt Consolidation?

You have $25,000 in high-interest debt scattered across three credit cards, and you're drowning in 24% APR charges. You know consolidation is the answer, but should you get a personal loan or tap into your home equity with a HELOC?

The difference between these two choices could cost—or save—you thousands of dollars. Let's break down exactly when each option wins, with real numbers and scenarios.

The Tale of Two Loans: Side-by-Side Comparison

Personal Loan: The Straightforward Option

How it works: Unsecured installment loan with fixed rate and term.

Typical terms in 2026:

• Amount: $5,000-$50,000
• APR: 8-25% (based on credit score)
• Term: 2-7 years
• Origination fee: 1-8% of loan amount
• Fixed monthly payment

Credit score requirements:

• 720+: 8-12% APR
• 680-719: 12-17% APR
• 640-679: 17-22% APR
• Below 640: 22-28% APR (if approved)

HELOC: The Homeowner's Advantage

How it works: Line of credit secured by home equity, typically with variable rate.

Typical terms in 2026:

• Amount: Up to 85% of home equity
• APR: 7.5-9.5% (prime + margin)
• Draw period: 10 years (interest-only payments available)
• Repayment period: 10-20 years
• Closing costs: $0-$900
• Variable monthly payment

Equity requirements:

• Minimum: $20,000-$25,000 in equity
• Most lenders: Can borrow up to 85% of equity
• DTI requirements: Typically 43% or less

The Real Cost: Full Comparison with Examples

Let's compare consolidating $25,000 in credit card debt with both options.

Scenario 1: Good Credit (720+ Score)

Personal Loan:

• Amount: $25,000
• APR: 10.5%
• Term: 5 years (60 months)
• Origination fee: 3% ($750)
• Total borrowed: $25,750
• Monthly payment: $549
• Total interest: $7,190
• Total cost: $32,940

HELOC:

• Amount: $25,000
• Current APR: 8.5% (variable)
• Term: 5 years payoff strategy
• Closing costs: $395
• Total borrowed: $25,395
• Monthly payment: $518 (amortized over 5 years)
• Total interest: $5,685 (if rate stays constant)
• Total cost: $31,080

Winner: HELOC saves $1,860

But this assumes the variable rate stays at 8.5%. Let's see what happens if rates increase...

HELOC rate increases to 10.5% after 2 years:

• Years 1-2 at 8.5%: $2,100 interest
• Years 3-5 at 10.5%: $4,320 interest
• Total interest: $6,420
• Total cost: $31,815

Still wins by $1,125 even with 2% rate increase.

Scenario 2: Fair Credit (660 Score)

Personal Loan:

• Amount: $25,000
• APR: 16.9%
• Term: 5 years
• Origination fee: 5% ($1,250)
• Total borrowed: $26,250
• Monthly payment: $635
• Total interest: $11,850
• Total cost: $38,100

HELOC:

• Amount: $25,000
• Current APR: 9.2% (variable)
• Term: 5 years
• Closing costs: $495
• Total borrowed: $25,495
• Monthly payment: $522
• Total interest: $5,820 (if rate stays constant)
• Total cost: $31,315

Winner: HELOC saves $6,785

The gap widens significantly when personal loan rates are high. Even if the HELOC rate jumps to 12%, you still save over $4,000.

Scenario 3: Small Debt ($8,000)

Personal Loan:

• Amount: $8,000
• APR: 11.9%
• Term: 3 years
• Origination fee: 2% ($160)
• Total borrowed: $8,160
• Monthly payment: $268
• Total interest: $1,488
• Total cost: $9,648

HELOC:

• Amount: $8,000
• Current APR: 8.75%
• Term: 3 years
• Closing costs: $450
• Total borrowed: $8,450
• Monthly payment: $254
• Total interest: $1,154
• Total cost: $9,604

Winner: HELOC saves $44

Barely worth it. For smaller amounts, closing costs eat most of the savings. This is where personal loans often make more sense.

Scenario 4: Large Debt ($50,000)

Personal Loan:

• Amount: $50,000
• APR: 12.5% (lower rate for larger amounts)
• Term: 7 years
• Origination fee: 4% ($2,000)
• Total borrowed: $52,000
• Monthly payment: $839
• Total interest: $18,472
• Total cost: $70,472

HELOC:

• Amount: $50,000
• Current APR: 8.25%
• Term: 7 years
• Closing costs: $695
• Total borrowed: $50,695
• Monthly payment: $732
• Total interest: $10,978
• Total cost: $61,673

Winner: HELOC saves $8,799

For large amounts, HELOCs become dramatically more cost-effective. You're also saving $107/month in cash flow.

When Personal Loans Win: The Decisive Factors

Despite higher rates, personal loans are often the smarter choice when:

1. You Don't Own a Home (Obviously)

If you're renting or don't have home equity, a personal loan is your only unsecured option besides balance transfer cards.

Who this affects:

• 36% of Americans (renters)
• New homeowners with minimal equity
• Those who purchased recently and haven't built equity

2. You're Consolidating Under $10,000

Closing costs make HELOCs inefficient for small amounts.

Break-even calculation:

• HELOC closing costs: $500
• Rate advantage: 3% APR (HELOC 8.5% vs. personal loan 11.5%)
• Loan amount: $8,000
• Interest savings over 3 years: ~$400

You're paying $500 to save $400. Doesn't work.

Threshold: HELOCs become cost-effective around $12,000-$15,000, depending on closing costs and rate differential.

3. Fixed Payments Are Non-Negotiable

HELOCs have variable rates tied to the prime rate. If you absolutely need predictable payments, personal loans deliver certainty.

Real scenario—Angela's budget:

• Monthly income: $4,200
• Fixed expenses: $3,100
• Margin: $1,100
• Cannot handle payment increases

She chose a $395 fixed personal loan payment over a HELOC that could fluctuate from $340 to $480. The predictability was worth a slightly higher total cost.

4. You're Risk-Averse About Your Home

Personal loans are unsecured. Miss payments and your credit suffers, but you won't lose your house. HELOCs put your home at risk.

For whom this matters:

• Self-employed with variable income
• Commission-based sales roles
• Volatile industries
• Anyone with job security concerns

Mark's decision: Works in tech with layoff concerns

• Could save $2,200 with HELOC
• Chose personal loan for peace of mind
• Worth the extra cost to avoid risking his home

5. You Have Excellent Credit AND Small Loan

If you have a 750+ credit score and need less than $15,000, you might qualify for personal loan rates under 9%—competitive with HELOCs after closing costs.

Example rates for $12,000 with 760 score:

• Personal loan: 8.9%, $250/month, total interest $2,160
• HELOC: 8.5%, $246/month, $500 closing, total interest $2,260

Winner: Personal loan saves $100 and provides fixed rate.

6. Quick Funding is Critical

Personal loans fund in 24-72 hours. HELOCs take 2-6 weeks to close.

When speed matters:

• Creditor lawsuits pending
• Collection deadlines
• Time-sensitive debt settlement offers
• About to miss critical payment

Tracy's emergency:

• Had 10 days before wage garnishment
• Needed $18,000 immediately
• HELOC would take 3+ weeks
• Personal loan funded in 48 hours
• Paid extra in interest but avoided garnishment

When HELOCs Win: The Homeowner's Advantage

HELOCs dominate in these situations:

1. You're Consolidating $15,000+ at High Interest

The larger the debt and higher the rate difference, the more HELOCs save.

Savings by amount (assuming 8.5% HELOC vs. 14% personal loan, 5 years):

The gap increases linearly with loan size.

2. Your Credit Score is Below 700

Personal loan rates spike dramatically for fair credit. HELOCs care more about equity than credit scores.

Rate comparison at 650 credit score:

• Personal loan: 18-24% APR
• HELOC: 9-10% APR

Savings example—$20,000 consolidated:

• Personal loan at 21%: $32,000 total cost over 5 years
• HELOC at 9.5%: $26,800 total cost
• Saves $5,200

3. You Need Flexible Access to Funds

Personal loans give you one lump sum. HELOCs let you draw what you need, when you need it.

Why this matters:

• Consolidating debt gradually as bills come due
• Keeping some funds available for emergencies
• Only paying interest on what you actually use

David's smart strategy:

• HELOC limit: $40,000
• Drew $22,000 for immediate debt payoff
• Kept $18,000 available for emergencies
• Only pays interest on $22,000
• Peace of mind having backup funds

With a personal loan, he'd have borrowed (and paid interest on) $40,000 whether he needed it all or not.

4. You Want Tax-Deductible Interest (Special Case)

HELOC interest is tax-deductible ONLY if used for home improvements, not debt consolidation. But if you're strategic...

The workaround:

• Use HELOC for upcoming home renovation ($25,000)
• Use freed-up cash to pay off debt
• HELOC interest is now tax-deductible

Tax savings example:

• HELOC balance: $25,000
• Interest paid: $2,000/year
• Tax bracket: 24%
• Tax savings: $480/year

Important: This only works if you were genuinely planning home improvements. Using HELOC directly for debt consolidation isn't deductible—don't let anyone tell you otherwise.

5. You're Paying Off Debt Over a Longer Timeline

HELOCs offer longer repayment periods (up to 30 years) and interest-only options during draw period.

Strategic use case:

• Emergency: Only pay interest-only minimums (temporarily)
• Normal times: Pay aggressively toward principal
• Flexibility to adjust payments based on circumstances

Personal loans: Fixed payment every month, no flexibility.

Andrea's situation:

• Variable income (freelance designer)
• Some months: $6,000 income
• Other months: $2,500 income

HELOC lets her:

• Pay $800 in good months
• Pay $250 interest-only in lean months
• Personal loan would force $550 payment regardless

6. You Plan to Sell Your Home Soon

If you're selling within 2-3 years, HELOCs offer a unique advantage: you can pay them off from sale proceeds without early payoff penalties.

Strategy:

• Get HELOC now for debt consolidation
• Enjoy lower rates for 2 years
• Sell house
• Pay off HELOC from equity at closing
• No prepayment penalties (unlike some personal loans)

The Hybrid Approach: Using Both

Sometimes the smartest strategy is combining personal loans and HELOCs.

Strategy 1: Tiered Debt Consolidation

Use each product for what it does best:

Example—$35,000 total debt:

• $20,000 high-interest credit cards → HELOC at 8.5%
• $8,000 car loan at 9% → Keep it (lower than personal loan rate)
• $7,000 medical debt → Personal loan at 11% (no home at risk)

Result: Optimize each debt independently rather than one-size-fits-all.

Strategy 2: HELOC for Large, Personal Loan for Emergency Buffer

Michael's setup:

• Consolidated $30,000 debt with HELOC
• Got $5,000 personal loan as emergency fund
• HELOC saved on interest for main debt
• Personal loan prevented needing HELOC for emergencies (keeping home secure)

Strategy 3: Start with Personal Loan, Refinance to HELOC Later

Why: HELOCs require more documentation and time. If you need immediate relief:

1. Get personal loan now (fast funding)
2. Stop high-interest bleeding immediately
3. Apply for HELOC simultaneously
4. Refinance personal loan with HELOC once approved
5. Net: Quick relief + long-term savings

Maria's timeline:

• Day 1: Applied for HELOC
• Day 3: Got personal loan, paid off credit cards
• Week 4: HELOC approved
• Week 5: Paid off personal loan with HELOC
• Only paid 1 month of personal loan interest
• Saved $3,800 over keeping personal loan

The Real Risks: What Can Go Wrong

HELOC Risks

Variable rate increases: Prime rate increases directly raise your payment.

Scenario: You borrow $30,000 at 8.5%

• Payment: $615/month
• Prime rate increases 2%
• New rate: 10.5%
• New payment: $663/month
• Increase: $48/month or $576/year

Home at risk: Default on HELOC = possible foreclosure.

Draw period ends: When the 10-year draw period ends, you enter repayment and must pay principal + interest. Payment can double.

Home value drops: If your home value decreases significantly, lenders can freeze your HELOC, preventing future draws.

Personal Loan Risks

High rates for fair credit: One late credit card payment drops your score, and personal loan rates jump from 12% to 22%.

Origination fees: Some lenders charge 6-8% upfront, making the effective APR much higher than advertised.

Prepayment penalties: Some personal loans charge fees for paying off early (though rare).

No flexibility: Fixed payment every month regardless of financial hardship.

Decision Framework: Your 5-Minute Analysis

Answer these questions to determine your best option:

Question 1: Do you own a home with at least $25,000 in equity?

• NO → Personal loan (only option)
• YES → Continue

Question 2: How much debt are you consolidating?

• Under $10,000 → Personal loan (closing costs not worth it)
• $10,000-$15,000 → Compare both (it's close)
• Over $15,000 → HELOC likely wins (continue)

Question 3: What's your credit score?

• Under 650 → HELOC (personal loan rates will be terrible)
• 650-720 → HELOC (significant rate advantage)
• Over 720 → Either (compare specific offers)

Question 4: How stable is your income?

• Very stable job → HELOC (can handle variable payments)
• Variable/uncertain → Personal loan (predictable payments safer)

Question 5: How quickly do you need the money?

• Immediately (under 1 week) → Personal loan
• Can wait 2-6 weeks → HELOC

Question 6: How important is monthly payment flexibility?

• Very important → HELOC (interest-only option)
• Not important → Either option works

The Bottom Line: Run Your Actual Numbers

General guidelines are helpful, but YOUR specific situation determines the winner. Here's how to calculate:

Step 1: Get Personal Loan Quotes

Shop 3-5 lenders:

• Online lenders: LightStream, SoFi, Marcus, Upgrade
• Credit unions: Often best rates
• Your current bank: Relationship discounts possible

Record for each:

• APR (including origination fee)
• Monthly payment
• Total interest over life of loan

Step 2: Get HELOC Quotes

Contact 3-5 lenders:

• Your mortgage lender
• Local credit unions
• Online lenders: Figure, Spring EQ

Record for each:

• Current APR
• Rate cap (maximum rate can reach)
• Closing costs
• Monthly payment (calculate both interest-only and principal + interest)

Step 3: Calculate Total Cost

Personal Loan: Monthly payment × months + origination fees

HELOC:

• Best case: Current rate for entire term + closing costs
• Worst case: Maximum rate for entire term + closing costs
• Realistic: Current rate for 2 years, +2% for remaining term + closing costs

Step 4: Factor in the Intangibles

Subtract value of:

• Payment flexibility
• Risk tolerance
• Peace of mind
• Speed of funding

Step 5: Decide

If HELOC saves more than $1,000 over the loan term AND you're comfortable with the risks, choose HELOC.

If the difference is under $1,000, choose based on priorities:

• Want certainty → Personal loan
• Want flexibility → HELOC
• Want speed → Personal loan
• Want lowest total cost → HELOC (usually)

Take Action: Compare Your Real Options

The difference between a personal loan and HELOC can be thousands of dollars over the life of your consolidation. But the only way to know which is better for YOU is to compare actual offers based on your credit, equity, and situation.

The math might surprise you—sometimes the option you assume is best turns out to be the expensive one.

Ready to see your real numbers? Get pre-qualified for a HELOC in 60 seconds and compare against personal loan offers you've received. See your rate without affecting your credit score, no obligations. Make your decision based on facts, not assumptions.

Get Pre-Qualified Now – See your personalized HELOC rate and make an informed choice.