Cash-Out Refi vs HELOC vs Personal Loan for Debt Consolidation: My $47K Debt Payoff Analysis

I had $47,000 in credit card and personal loan debt at an average 19.8% interest rate costing me $9,306/year. My monthly minimum payments totaled $1,142.

I needed debt consolidation desperately. But which option? Cash-out refinance, HELOC, or personal consolidation loan?

I spent three weeks analyzing all three options with actual quotes from lenders. Here’s my complete comparison including total interest costs, monthly payments, breakeven analysis, credit requirements, and which option I ultimately chose to eliminate $47K in high-interest debt.

My Debt Situation and Home Equity

Debt to consolidate:

• Credit card 1: $18,200 at 21.99% → $410/month minimum
• Credit card 2: $14,800 at 19.49% → $333/month minimum
• Credit card 3: $8,900 at 17.99% → $200/month minimum
• Personal loan: $5,100 at 14.5% → $199/month minimum
• Total debt: $47,000
• Average interest rate: 19.8%
• Monthly payments: $1,142
• Years to payoff at minimums: 5.8 years
• Total interest if paid at minimums: $32,500

This debt was crushing. Most of my payments went to interest—I’d pay $32,500 additional just to eliminate $47,000 in debt if I continued at minimum payments.

Home equity position:

• Home value: $395,000
• Current mortgage: $247,000 at 4.25% (locked in 2019)
• Current mortgage payment: $1,215/month
• Remaining term: 24 years
• Equity: $148,000 (37%)

I had three debt consolidation options: cash-out refi, HELOC, or personal consolidation loan. I got quotes for all three.

Option 1: Cash-Out Refinance

I got quotes from three lenders through Browse Lenders:

Best cash-out refi quote:

• New loan amount: $294,000 (includes $47K debt payoff)
• Interest rate: 6.875%
• New monthly payment: $1,935 (P&I)
• Closing costs: $9,400
• Term: 30 years
• Credit requirement: 660+ (I had 698)

Monthly impact:

• Old mortgage + debt payments: $1,215 + $1,142 = $2,357/month
• New mortgage payment: $1,935/month
• Monthly savings: $422/month

Total interest over 10 years:

• Interest on $294K at 6.875%: $193,800
• Less closing costs: $9,400
• Net interest paid: $184,400 over 10 years

Breakeven on closing costs: $9,400 ÷ $422/month = 22.3 months

Pros:

• Lowest monthly payment ($1,935/month)
• Fixed rate for 30 years (payment never increases)
• Largest monthly cash flow improvement ($422 saved)
• One single payment replaces mortgage + debt
• Interest is tax-deductible (consult tax advisor)

Cons:

• Highest closing costs ($9,400)
• Replaces my 4.25% mortgage with 6.875% (2.625% increase on full balance)
• Longest closing timeline (30-45 days)
• Extends debt repayment to 30 years unless I pay extra
• Resets mortgage clock to 30 years from 24 remaining

The cash-out refi had the lowest monthly payment and best cash flow, but I’d lose my 4.25% mortgage rate and the closing costs were significant.

Option 2: Home Equity Line of Credit (HELOC)

HELOC quote:

• Credit line: $50,000 (up to 80% LTV minus first mortgage)
• Interest rate: 9.25% variable (Prime + 0.75%)
• Draw period: 10 years (interest-only option available)
• Repayment period: 20 years after draw
• Closing costs: $1,600
• Credit requirement: 680+ (I had 698)

If I borrow $47,000:

• Interest-only payment: $362/month during draw period
• Principal + interest (10-year payoff): $605/month
• Principal + interest (5-year payoff): $990/month

Monthly impact (with 5-year aggressive payoff):

• Mortgage: $1,215/month (unchanged)
• HELOC payment: $990/month
• Total: $2,205/month
• Savings vs current: $152/month

Total interest over 5 years (aggressive payoff):

• HELOC interest at 9.25%: $12,180
• First mortgage interest (5 years at 4.25%): $49,200
• Closing costs: $1,600
• Total interest paid: $62,980

Breakeven on closing costs: $1,600 ÷ $152/month = 10.5 months

Pros:

• Preserves my 4.25% first mortgage rate (huge benefit)
• Low closing costs ($1,600 vs $9,400 for cash-out refi)
• Fast access to funds (2-3 weeks vs 30-45 days)
• Only pay interest on amount actually borrowed
• Can close HELOC after debt is paid off
• Flexibility to pay off faster without penalty

Cons:

• Variable rate (could increase if Fed raises rates)
• Higher rate than cash-out refi (9.25% vs 6.875%)
• Two separate payments (mortgage + HELOC)
• Requires discipline to pay off aggressively
• Slightly higher total monthly payment than cash-out refi

The HELOC preserved my low first mortgage rate, had much lower closing costs, but the variable 9.25% rate was higher than cash-out refi’s fixed 6.875%.

Option 3: Personal Consolidation Loan

I also explored personal debt consolidation loans that don’t use home equity:

Best personal loan quote:

• Loan amount: $47,000
• Interest rate: 11.99% fixed
• Term: 5 years
• Monthly payment: $1,050
• Closing costs: $0 (no fees)
• Credit requirement: 680+ (I had 698)

Monthly impact:

• Mortgage: $1,215/month (unchanged)
• Personal loan: $1,050/month
• Total: $2,265/month
• Savings vs current: $92/month

Total interest over 5 years:

• Personal loan interest at 11.99%: $15,990
• First mortgage interest (5 years at 4.25%): $49,200
• Closing costs: $0
• Total interest paid: $65,190

Breakeven on closing costs: $0 (no closing costs)

Pros:

• No closing costs (immediate savings vs cash-out refi)
• Preserves 4.25% first mortgage rate
• No home equity required (doesn’t put home at risk)
• Fixed rate (payment never changes)
• Fast approval (3-5 days)
• Two separate payments remain independent

Cons:

• Highest interest rate (11.99% vs 6.875% cash-out or 9.25% HELOC)
• Higher total monthly payment than cash-out refi or HELOC
• Fixed 5-year term (less flexibility than HELOC)
• Doesn’t improve overall debt-to-income ratio as much
• Personal loan interest isn’t tax-deductible

The personal loan had zero closing costs and preserved my mortgage rate, but the 11.99% rate was significantly higher than the other options.

Side-by-Side Total Cost Comparison

Let me compare all three options over 5 years and 10 years:

5-Year Payoff Timeline

Cash-Out Refi (paying extra $800/month toward principal):

• Total interest paid: $87,400
• Closing costs: $9,400
• Total cost: $96,800

HELOC (5-year aggressive payoff at $990/month):

• HELOC interest: $12,180
• First mortgage interest: $49,200
• Closing costs: $1,600
• Total cost: $62,980
• Saves $33,820 vs cash-out refi

Personal Loan (5-year fixed term at $1,050/month):

• Personal loan interest: $15,990
• First mortgage interest: $49,200
• Closing costs: $0
• Total cost: $65,190
• Saves $31,610 vs cash-out refi

Over 5 years, HELOC is cheapest despite higher 9.25% rate because it preserves my 4.25% first mortgage rate on $247,000 balance.

10-Year Payoff Timeline

Cash-Out Refi (standard 30-year amortization):

• Total interest paid: $193,800
• Closing costs: $9,400
• Total cost: $203,200

HELOC (10-year payoff at $605/month):

• HELOC interest: $25,600
• First mortgage interest: $88,900
• Closing costs: $1,600
• Total cost: $116,100
• Saves $87,100 vs cash-out refi

Personal Loan (refinance after 5 years, paid off in 10 years total):

• Personal loan interest (first 5 years): $15,990
• Mortgage interest: $88,900
• Closing costs: $0
• Total cost: $104,890
• Saves $98,310 vs cash-out refi

Over 10 years, personal loan is cheapest if I’m not paying down cash-out refi aggressively, followed closely by HELOC. Cash-out refi becomes very expensive due to losing the 4.25% rate on my full mortgage balance.

Monthly Payment Comparison

Here’s what I’d pay each month under each scenario:

Current situation:

• Mortgage: $1,215/month
• Debt payments: $1,142/month
• Total: $2,357/month

Cash-out refi:

• New mortgage: $1,935/month
• Savings: $422/month ✅ Best cash flow

HELOC (5-year aggressive payoff):

• Mortgage: $1,215/month
• HELOC: $990/month
• Total: $2,205/month
• Savings: $152/month

Personal loan:

• Mortgage: $1,215/month
• Personal loan: $1,050/month
• Total: $2,265/month
• Savings: $92/month

Cash-out refi provides the best monthly cash flow improvement, but HELOC and personal loan preserve my low 4.25% mortgage rate.

Credit Score and Qualification Requirements

Each option has different qualification criteria:

Cash-Out Refi:

• Minimum credit score: 660 (my 698 qualified easily)
• Maximum LTV: 80% (I was at 74% = $294K / $395K)
• Maximum DTI: 43% (I was at 38%)
• Income verification: Full (W2s, pay stubs, tax returns)
• Appraisal required: Yes ($600 cost)

HELOC:

• Minimum credit score: 680 (my 698 qualified)
• Maximum CLTV: 80% (combined first mortgage + HELOC)
• Maximum DTI: 43% (I was at 38%)
• Income verification: Full (W2s, pay stubs, tax returns)
• Appraisal required: Sometimes (not required for my equity position)

Personal Loan:

• Minimum credit score: 680 (my 698 qualified)
• No home equity required
• Maximum DTI: 50% (more flexible)
• Income verification: Pay stubs only (faster)
• Appraisal required: No

My 698 credit score qualified for all three options. Those with scores below 680 might struggle with HELOC or personal loan and would need to focus on cash-out refinance if they have sufficient equity.

My Decision: I Chose HELOC

After analyzing all three options, I chose the HELOC for these reasons:

Why HELOC won:

1. Preserved my 4.25% mortgage rate (worth $33,820 savings vs cash-out refi over 5 years)
2. Low closing costs ($1,600 vs $9,400 for cash-out refi)
3. Total interest savings of $33,820 over 5 years vs cash-out refi
4. Flexibility to pay off aggressively or adjust payments if needed
5. Fast closing (21 days vs 42 days for cash-out refi)
6. Can close HELOC once debt is paid off (recaptures $50K equity)

Why I didn’t choose cash-out refi:

• Would lose valuable 4.25% mortgage rate (replaced with 6.875%)
• Higher closing costs ($9,400)
• Resets mortgage to 30 years from 24 remaining
• Total interest over 5 years: $96,800 vs $62,980 for HELOC
• Extends debt repayment unless I pay extra principal

Why I didn’t choose personal loan:

• Higher rate (11.99% vs 9.25% HELOC)
• Less flexibility (fixed 5-year term)
• Higher total interest: $65,190 vs $62,980 for HELOC
• Doesn’t leverage home equity efficiently

The HELOC gave me the best balance of total cost savings, monthly payment flexibility, and preserving my low first mortgage rate.

My HELOC Strategy and Results

What I did:

• Opened $50,000 HELOC at 9.25% variable rate
• Used $47,000 to pay off all credit cards and personal loan
• Kept $3,000 available for emergencies
• Committed to $990/month HELOC payment (5-year aggressive payoff)
• Set up auto-pay from checking account

6 months later:

• HELOC balance: $42,050 (paid down $4,950)
• Monthly payment: $2,205 total ($1,215 mortgage + $990 HELOC)
• Savings vs old situation: $152/month cash flow improvement
• Credit score: 698 → 741 (credit card utilization dropped from 82% to 3%)
• Total interest paid (6 months): $2,180 on HELOC + $5,150 on mortgage = $7,330

If I’d chosen cash-out refi:

• Total interest paid (6 months): $10,050
• Extra interest cost: $2,720 in just 6 months

The HELOC is working perfectly. I’m saving $152/month in cash flow, paying down debt aggressively on a 5-year timeline, and most importantly, preserving my valuable 4.25% mortgage rate for my $247,000 first mortgage balance.

My credit score jumped 43 points in 6 months as my credit card utilization dropped from 82% to 3%, which improved my middle credit score significantly and opened up even better financial options.

Decision Framework: Which Option to Choose

Use this framework to choose the best debt consolidation option:

Choose Cash-Out Refi If:

• Your current mortgage rate is 5.5% or higher (smaller rate differential)
• You want the lowest monthly payment (best cash flow)
• You prefer one single payment vs two separate payments
• You have large debt amount (50%+ of mortgage balance)
• You plan to pay off very slowly (10-20+ years)

Choose HELOC If:

• Your current mortgage rate is 4.5% or lower (preserve low rate)
• HELOC rate is within 3% of cash-out refi rate
• You can commit to aggressive 5-7 year payoff
• You want flexibility in payment amounts
• You want low closing costs and fast access to funds

Choose Personal Loan If:

• You have limited home equity (below 20%)
• You want zero closing costs
• You prefer not to use home as collateral
• Your mortgage rate is 4.5% or lower (preserve it)
• You want fixed payment with no rate risk

For most homeowners with low mortgage rates (under 4.5%) locked in from 2020-2021, HELOC or personal loan will save significantly more money than cash-out refi, even though cash-out refi has lower rates. The key is preserving that valuable low first mortgage rate.

Total Cost Summary Table

Here’s my complete 5-year cost comparison:

HELOC saves $33,820 vs cash-out refi over 5 years despite having a 2.375% higher interest rate. This is because HELOC preserves my 4.25% first mortgage rate on the $247,000 balance, while cash-out refi replaces it with 6.875%.

The Bottom Line

For my $47,000 debt consolidation with a 4.25% existing mortgage rate:

• HELOC saved $33,820 vs cash-out refi (5-year payoff)
• Personal loan saved $31,610 vs cash-out refi (5-year payoff)
• Cash-out refi provided best monthly cash flow ($422/month savings) but highest total cost

Your situation may differ based on:

• Your current mortgage interest rate
• Amount of debt vs mortgage balance
• How aggressively you can pay off debt
• Your credit score and qualification
• Whether you value cash flow vs total interest savings

Connect with specialists at Browse Lenders who can model all three scenarios (cash-out refi, HELOC, personal loan) for your specific situation and help you choose the option that saves the most money while meeting your monthly budget needs.

Have questions about comparing cash-out refi, HELOC, and personal loans for debt consolidation? Contact our team at support@browselenders.com for personalized analysis and guidance.