The holiday season is magical, but it also comes with its fair share of financial stress. With gift shopping, festive meals, and travel costs adding up, it’s no surprise that many Americans consider creative ways to manage their budgets. One option that may seem appealing is tapping into home equity to cover those holiday expenses. While it’s true that home equity loans and HELOCs often come with lower interest rates than credit cards, this decision isn’t as simple as it seems. Let’s explore why.

The Lure of Home Equity for the Holidays

Home equity loans and HELOCs (home equity lines of credit) can provide access to funds at interest rates significantly lower than those of credit cards or personal loans. With home values rising over the past few years, many homeowners find themselves sitting on a sizable equity cushion. It can feel like a quick fix to cover the holidays without maxing out your credit cards.

But, just because you can doesn’t mean you should. Financial experts caution against using home equity for discretionary expenses like holiday shopping or festive trips. Why? Because the risks far outweigh the temporary benefits.

The Risks of Using Home Equity for Holiday Spending

1. Your Home is on the Line
   Borrowing against your home means you’re putting it up as collateral. If you can’t keep up with repayments, you could face foreclosure. Is a memorable holiday worth risking your most valuable asset?

2. Higher Rates Than You Think
   While home equity financing may have lower rates than credit cards, they are not exactly “cheap.” HELOC rates, for example, average around 8.61% in late 2024 — a figure that has doubled since 2022. It’s important to remember that those rock-bottom pandemic-era rates are long gone.

3. Long-Term Debt for Short-Term Joy
   Holiday expenses are fleeting — they cover gifts, decorations, and entertainment that bring joy for a few weeks. Home equity loans, on the other hand, take years to repay. The stress of long-term debt could overshadow the happiness of a debt-financed holiday.

4. Hefty Borrowing Minimums
   Home equity financing is typically intended for large-scale needs, like home renovations or debt consolidation. Many lenders won’t approve loans smaller than $15,000, meaning you might be borrowing much more than you actually need for holiday expenses.

Smarter Ways to Manage Holiday Costs

Instead of risking your home equity, consider these tips to keep holiday spending in check:

• Budget and Plan Ahead
  Look at last year’s holiday spending and create a budget that’s realistic. Prioritize your expenses and decide where you can cut back.

• Set Boundaries
  Discuss gift-giving limits with friends and family. Perhaps agree to buy only for children or set a spending cap for each gift.

• Shop Smart
  Combine discounts, use store loyalty programs, and shop through cashback platforms like Rakuten to save on every purchase.

• Get Creative
  Homemade gifts or baked goods can be just as meaningful as store-bought presents — and far easier on your wallet.

• Plan for Next Year
  Start saving for the next holiday season early. A small monthly contribution can make a big difference when December rolls around.

Better Uses for Home Equity

Home equity can be a powerful financial tool when used wisely. Consider borrowing against it for:

• Home Improvements
  Renovations that add value to your property, like a new roof or updated kitchen, are an excellent use of equity.

• Debt Consolidation
  Use equity to pay off high-interest credit card debt, but only if you’re committed to staying out of debt moving forward.

• Education Costs
  If student loans or tuition have lower rates, home equity can be an alternative — but proceed with caution.

The Bottom Line

Using home equity for holiday expenses might seem like a convenient solution, but the risks often outweigh the benefits. Instead of financing a season of cheer with long-term debt, focus on smart budgeting and creative solutions to enjoy the holidays without financial strain.

Your home is one of your most valuable assets. Protect it by reserving home equity financing for investments that increase your property’s value or improve your financial health. The joy of the holidays is best enjoyed debt-free and with peace of mind.

If you’re considering a home equity loan or HELOC for a meaningful expense — like renovations or debt consolidation — it’s important to make informed decisions. Contact a local financial adviser or mortgage specialist to discuss your options today.