FirstClose Blog

Amid rising credit card debt and increasing interest rates, homeowners are increasingly turning to their most valuable asset—their home—to take control of their financial future. By consolidating high-interest debts into lower-rate home equity loans or lines of credit, homeowners can reduce financial burdens and simplify monthly payments.

This trend underscores the need for streamlined, borrower-focused tools to guide homeowners through the process of accessing and utilizing home equity. That’s why FirstClose developed the Debt Consolidation Wizard—an innovative feature designed to make debt consolidation smarter and simpler for both lenders and borrowers.

The Home Equity Advantage: A Solution for Rising Debt
Currently, homeowners in the U.S. hold a staggering $30 trillion in home equity. This represents an average of $143,000 per household, offering a substantial resource to address financial challenges. Simultaneously, consumer debt has reached new highs:

• Credit card balances exceeded $1 trillion in 2023, with average interest rates around 29%.
• Personal loan balances grew to $232 billion, as reported by TransUnion, with average APRs ranging from 10% to 36%.
• Behind mortgages, auto loan debt is the second-largest category of debt. Overall American owe $1.6 trillion in auto debt, accounting for 9.1% of consumer debt. In Q2, Americans took out $179.1 billion in new auto loans and the average interest rate for a new car loan is roughly 11%.

For many, consolidating these high-interest debts into a single, lower-interest home equity loan or Home Equity Line of Credit (HELOC) can save thousands of dollars over time.

Why the Debt Consolidation Trend is Growing
According to the MBA’s 2024 Home Equity Lending Study, debt consolidation is the fastest growing usage of home equity funds, up 33% from 22% year over year. Several factors are driving homeowners to consider home equity for debt consolidation:

1. Lower Interest Rates: Home equity loans typically offer rates far below those of credit cards or unsecured loans.
2. Stable Payments: Fixed-rate home equity loans provide predictable monthly payments, offering peace of mind.
3. Debt Simplification: Consolidating multiple debts into one reduces financial complexity and lowers the risk of missed payments.
4. Improved Cash Flow: Lower monthly payments free up cash for other expenses or savings goals.

Introducing the FirstClose Debt Consolidation Wizard
To help lenders meet the rising demand for home equity solutions, FirstClose developed the Debt Consolidation Wizard, a cutting-edge tool within the FirstClose Equity platform designed to simplify and accelerate the debt consolidation process.

This feature empowers lenders to:

• Provide Instant Insights: By analyzing a borrower’s current debts and calculating potential savings, the Wizard offers a clear picture of the financial benefits of consolidation.
• Accelerate Decision-Making: The intuitive platform ensures faster loan processing and borrower approvals, reducing operational bottlenecks.
• Enhance the Borrower Experience: With an easy-to-use interface, the Wizard helps borrowers navigate their options confidently, fostering trust and satisfaction.

The Debt Consolidation Wizard pulls in tradeline data to enable lenders to review outstanding debt balances and interest rates with their borrower, and then analyze LTV ratios and to identify eligible home equity solutions and monthly payment reductions to borrowers depending on different scenarios.

For example, a homeowner with $25,000 in credit card debt at a 20% APR could save over $4,000 annually by consolidating their balances into a home equity loan with a 7% interest rate.

The Future of Home Equity Lending
The home equity market is poised for significant growth as more homeowners recognize the value of tapping into their equity for financial solutions like debt consolidation. With trillions of dollars in untapped home equity and rising consumer demand for accessible, lower-cost borrowing options, the opportunity for lenders to capture this market is immense.

Lenders who embrace cutting-edge technology, like FirstClose Equity will be better equipped to meet this demand. By streamlining processes, delivering personalized borrower experiences, and demonstrating clear financial benefits, these lenders will position themselves as leaders in the evolving home equity landscape.

The combination of rising consumer needs and innovative tools creates a win-win scenario—borrowers gain clarity and confidence in their financial decisions, while lenders expand their market share and build long-term client relationships.