Five Expenses to Avoid
A Home Equity Line of Credit (HELOC) can be a practical option for home improvements, debt consolidation, or other planned expenses that support long-term financial goals. But using it for day-to-day spending or costs that exceed your budget can lead to financial strain—and may not be a responsible way to use your HELOC.
Here are five types of expenses to avoid when using a HELOC, helping you borrow responsibly and protect your equity.
1 | Vacations
Vacations can include honeymoons, destination weddings, and other expensive trips. Using a HELOC to fund a vacation is risky, especially if it means spending beyond your means, and it can lead to long-term financial strain. Instead, consider opening a Special Purpose Savings Account and setting aside funds gradually to cover your travel plans without taking on debt.
2 | Vehicles
Using a HELOC to purchase a vehicle may seem appealing, but it comes with unnecessary risk.
Auto loans typically have fixed terms, with repayment of both principal and interest over a set period—usually between 24 and 84 months. By contrast, a HELOC may have a draw and repayment period that lasts up to 15 years, which means you could end up paying off the loan long after the car has lost most of its value. Instead of making this HELOC financial mistake, explore auto loan options specifically designed for vehicle purchases. Many offer competitive rates and terms that align better with the lifespan of the asset.
3 | Short-Term Luxury Purchases
Using a HELOC to finance high-end jewelry, designer clothing, and other short-term splurges means borrowing against your home for items that likely won't retain their worth over time. This is not the best use of a HELOC, especially if you’re tempted to spend more than your current budget allows. For discretionary purchases like these, consider alternative financing or create a budget to cover the cost gradually.
4 | Risky Investments
Investing in volatile markets, speculative real estate, or uncertain business ventures always involves risks and may include unexpected consequences. This is a clear example of when not to use a HELOC, especially if there is no guaranteed return. Before moving forward with investment-related borrowing, consider speaking with a trusted investment advisor to explore options that better match your financial goals.
5 | Paying Off Credit Cards and Loans Without a Plan
Using a HELOC to pay off credit cards and other loans can be a smart move if it’s done with a clear goal and strategy. However, doing so may not solve an underlying problem if your spending habits remain the same and other adjustments are not made. Without a plan, it’s easy to accumulate new debt and fall back into the same cycle of borrowing.
This is one of the more common HELOC mistakes. Before using a HELOC to pay off credit cards and other loans , take time to create a realistic repayment strategy and understand the reasons that led to the debt in the first place. That way, you're using a HELOC responsibly to support long-term financial stability—not just a temporary fix.
Knowing when not to use a HELOC is just as important as understanding when it makes sense. By avoiding common pitfalls and borrowing with a plan in place, you can continue to use your HELOC responsibly and keep your long-term financial goals on track.
If you’re considering a HELOC and want to learn more about how to use it responsibly, contact us to discuss your options or speak with a financial professional.