3 essential tips for managing a HELOC like a pro

You've got a HELOC, or you're thinking about getting one. For many homeowners, a home equity line of credit is a helpful tool for reaching financial goals. You could use one to tackle those lingering credit card balances, finally get that kitchen remodel done, or put a financial safety net in place. Let’s make sure you've got all the info you need to make your HELOC work for you.

1) Understand the terms and conditions

Making the most of your HELOC begins with understanding how a HELOC works. First, the general details:

• A HELOC is a secured loan. Your home is the collateral. That means if you don’t repay the loan, the lender could repossess your property and sell it to recover their losses. That’s why it pays to know how your loan works. Naturally, you won’t want to miss payments. 

• The draw period is at the beginning of your HELOC. For the first few years, you can borrow, repay, and borrow more, up to your credit limit, as often as you like, much like a credit card. During this time, some lenders may allow you to make interest-only payments. If you pay only the interest charges, you won’t make any headway against your debt. 

• After the draw period ends, you’ll enter the repayment period. Now, monthly principal-and-interest payments are required. The amount will be calculated to fully pay off your balance by the end of the repayment period.

Some HELOCs have a variable interest rate during the draw period and convert to a fixed interest rate when repayment starts. Variable means your interest rate could change, which means your future payment amounts will be harder to predict. 

If you opt for a fixed-rate HELOC, your rate will never change for the life of the loan.

Know the terms and conditions that apply to your HELOC. There's nothing especially exciting about reading legalese that most of us click past. But do yourself a favor—sit down with your favorite beverage and pore over the fine print. It’s worth it because the terms and conditions lay it all out for you: the interest rate, when your payments are due, how long the draw period will last, how long the repayment term will last, and other vital details. This information is unique to your loan and your lender.

The more you know, the better prepared you are to manage your loan like a pro. 

2) Make timely payments

Making timely payments could benefit you in several powerful ways:

• On-time payments help you build and maintain a strong credit standing

• Each timely payment brings you one month closer to loan payoff

• You can feel good about making a smart plan and seeing it through

Remember, unlike credit cards or some personal loans, a fixed-rate HELOC means you won’t be hit with a higher payment. That's a pretty sweet advantage. After all, who wants to open a letter from a lender to learn their interest rate (and monthly payment) has increased?  

3) Start a countdown 

A HELOC is all about looking forward. Unlike a credit card, a HELOC has a set payoff date. Once repayment starts, if you have a 10-year repayment term and you make all of your scheduled payments, you can be sure your debt will be paid off in 120 months.

As you tick another payment off the calendar each month, take time to appreciate that you're that much closer to putting the debt in your rearview mirror. Moving in the right direction can do wonders for your spirit and financial confidence. 

Don't be afraid to celebrate milestones. For example, you might go out for a nice dinner after six months of making regular payments. Or maybe you take a weekend trip once a year to celebrate putting another year of payments behind you. The point is to find a way to congratulate yourself for tackling debt in such an effective way. 

HELOCs aren't just for debt consolidation

HELOCs can be a clever way to consolidate debt, but they're much more than that. Here are two other common uses for HELOCs:

Home improvements

A HELOC could cover your next home improvement project. Better yet, the interest you pay may be tax deductible. According to the IRS, through 2025, if a home equity loan or HELOC is used to "buy, build, or substantially improve the residence," interest you pay on the borrowed money is classified as “home acquisition debt,” and may be deductible at tax time. After 2025, you may be able to deduct the home equity and HELOC interest even if you used the money for other purposes, including debt consolidation. 

We’re not tax professionals and although we can offer general information, we cannot offer tax advice. Please reach out to a tax professional to discuss your specific situation.

Emergency situations

Ideally, everyone would have a large enough emergency fund to bail themselves out of a tough situation, but that's not always the case. Life happens. A HELOC is worth investigating if you're hit with an emergency and don't know which way to turn for the cash you need. 

You've worked hard to build equity in your home, and you deserve to access it when it's in your best interest. If, after weighing the pros and cons of borrowing against your home equity, you decide a HELOC is appropriate, just remember to familiarize yourself with how it works, make regular payments, and celebrate your success.