Personal loan vs. HELOC: Which $50,000 debt consolidation option is right for you?

You're ready to deal with your debt, which deserves a pat on the back. You've looked into different repayment strategies and wondered if debt consolidation might be a good fit. 

Consolidation means you get a new loan to pay off existing debts—leaving you with just the loan to repay. A $50,000 debt consolidation loan, for example, could help you wipe out credit card balances, medical bills, and other debts. 

What is a $50,000 debt consolidation?

A $50,000 debt consolidation loan is a lump sum of money you could use to pay off debts. The types of debts you might pay off with  your loan include:

• Credit cards

• Department store cards

• Medical debt

• Other personal loans or lines of credit

• Buy now, pay later (BNPL) agreements

• Payday loans

• Private loans from friends or family members

You apply for a debt consolidation loan. If approved, the lender gives you access to $50,000 that you could use to pay off your debts. You then pay the loan back to the lender with interest. 

Who qualifies for a $50,000 debt consolidation loan?

Lenders decide who's eligible for a $50,000 debt consolidation. Generally, they look for borrowers with:

• Good to excellent credit scores

• Steady income

• Stable employment

A lender will look at your credit reports to check how you’ve handled credit and debt in the past before they approve you.

Can you get a $50,000 debt consolidation loan with bad credit? It's possible. It just might cost you more to borrow if the lender charges a higher interest rate. 

Secured vs. unsecured loan options

Debt consolidation loans can be secured or unsecured. Here's the difference. 

• Secured loans require collateral, which is something of value that you own. For example, you might use a bank account, a vehicle, or even your home to secure a loan. 

• Unsecured loans don't have any collateral requirements. 

Secured loans may offer lower interest rates because collateral lowers the lender’s risk of loss. If you don't repay the loan for any reason, the lender can take your collateral. The loan is less risky, so the lender can afford to give you a break on interest. 

Home equity loans and home equity lines of credit (HELOCs) are secured loans. Your home is the collateral. Here's how they work. 

• A home equity loan puts a lump sum of money in your bank account. You can use the money for anything, including debt consolidation. 

• With a HELOC, you have a draw period and a repayment period. In the draw period, which usually lasts five to 10 years, you can borrow, repay, and borrow more as often as you like, up to your credit limit. You could use your line of credit to consolidate debt or cover other expenses. During repayment, you can’t borrow more.

If you don't own a home or if you prefer an unsecured loan, you could get a $50,000 personal loan instead. 

$50,000 debt consolidation loan examples

How much will you pay for a $50,000 debt consolidation loan? Let's look at a couple of examples. 

The personal loan is cheaper where interest is concerned, even though it has a higher rate. That’s because the longer you take to repay a debt, the more you’ll pay in interest.

The HELOC is more budget-friendly when it comes to monthly payments. 

The HELOC has another big advantage, which is that the line of credit remains open for a few years. Let’s say you pay down half of your loan balance in the first three years. You could then borrow another $25,000. Your payment would go up to $627 and you’d have 17 years to repay it.

You can save on interest by paying off a debt faster. If you borrow $50,000 with the HELOC and pay it back in 10 years, your payment goes up to $689, and you’d pay about $41,000 less in interest.

Ultimately, you have to decide what's more important: lower total costs or lower monthly payments.  

Debt consolidation loan terms, interest rates, and repayment timelines

Lenders decide what kind of terms to offer for debt consolidation loans. A typical repayment term for a personal loan is two to seven years. With a HELOC, you might have a five or 10-year draw period, followed by a 10- to 30-year repayment period. 

Read more: Fund your future with a 30-year HELOC

HELOC rates and home equity loan rates are usually lower than personal loan rates. The rate you qualify for with either kind of loan hinges on your credit scores. The amount you want to borrow could also be a factor. Rate discounts could help you save money. 

For example, you might qualify for these discounts with a $50,000 debt consolidation loan from Achieve Personal Loans:

• Co-borrower discount. This discount saves you money if you apply for a loan with a creditworthy co-borrower. 

• Direct creditor payoff discount. You can cut your rate with this discount if you let Achieve Personal Loans pay off your creditors directly from your loan funds. 

• Retirement savings discount. Got some cash tucked away in a 401(k), IRA, or another retirement plan? Showing proof of that could help you get a lower rate on your loan. 

Achieve also offers flexible repayment terms so you can get a payment amount that fits comfortably into your budget. 

Pros and cons of a $50,000 debt consolidation loan

A debt consolidation loan could help you get your debts under control. Before you apply, it helps to know the advantages and disadvantages. 

Pros

• Combine multiple debt payments into one so you have less to track each month

• Potentially save money on interest if you qualify for a lower rate

• Boost your credit if you make on-time payments and keep credit card debt low

• Get out of debt faster than by making minimum payments

Cons

• Poor credit could make it harder to qualify for the lowest rates

• Lender fees may add to your total loan cost

• Your home could be at risk if you default on a home equity loan or HELOC

If you think a personal loan or home equity loan could be a good fit, check your rates to find out what you might qualify for. Make sure the lender performs a soft credit check that won’t impact your credit. Use an online loan calculator to get an idea of how much your monthly payments might be before you apply. 

Other options

A $50,000 debt consolidation loan is one way to handle debt. Other possibilities might suit you better. 

For example, you might consider:

• Debt management plans (DMP). A DMP restructures your debt so you make one monthly payment to a creditor counselor. It won't reduce what you owe, but it could make debt repayment easier to handle. 

• Debt resolution. Debt resolution lets you get rid of debt for less than what you owe. You can negotiate with your creditors to reduce your balances and get the rest of your debt forgiven. You could also let a professional debt resolution company do the negotiating for you.

• Bankruptcy. Chapter 7 bankruptcy can erase certain debts. Chapter 13 bankruptcy lets you repay them over three or five years. Either one could make sense if you have a significant financial hardship and want to stop collection actions against you.

Talk to a debt expert about your situation. They can walk you through all the options to help you find the best way to tackle your debt and get back on track financially.