Jan 17, 2026
Carol from Toronto called in to The Ramsey Show with a question about her home equity line of credit (HELOC), which she said she and her husband had been using “like a giant credit card (1).”
She said that although they had taken out the line of credit to make home improvements, after some investments they had made “essentially went to zero,” they started spending using their HELOC.
Advertisement
What made the situation more surprising, according to the show’s hosts, was the household’s income. Carol told co-hosts George Kamel and Jade Warshaw that her family earns about $500,000 a year, with roughly $300,000 in take-home pay — yet they were carrying a $400,000 HELOC on top of a $750,000 mortgage. The home itself is valued at about $2.5 million.
“Oh my gosh, woman,” Warshaw said upon hearing the numbers.
Kamel concurred, asking “You couldn’t cash-flow the renovations making half a million dollars?”
Here’s what the Ramsey Show hosts had to say — and what anyone with, or considering, a HELOC should keep in mind.
Big earners, big spenders
When Warshaw and Kamel asked Carol about her monthly spending, they uncovered a problem. Carol said that although they take home about $25,000 a month, they spend most of it, between private school for her three children and the HELOC.
“Your burn rate is high here. You've got a lot of expenses going on,” Kamel said.
Kamel went on to outline the advice The Ramsey Show gives to those looking to roll their HELOC into their mortgage. He said that if a HELOC is more than half of your annual income, they advise to add it to an existing mortgage.
The hosts were divided on whether Carol should do this. Warshaw noted that she thinks housing expenses should be no more than 25% of your take-home pay. She said that if Carol could roll the HELOC into her mortgage, and the new interest rate would be locked in at 2.9%, it could make sense, if the payments were within 25% of their income.
Advertisement
Kamel said that the interest rates weren’t his main concern, and that if Carol could buckle down and reign in spending, she should attack the HELOC and get it paid down as quickly as possible, and then turn around and do the same with her mortgage.
“I would keep the HELOC separate and make an aggressive goal to pay this off in, let’s say, three years,” Kamel said.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Robert Kiyosaki begs investors not to miss this ‘explosion’ — says this 1 asset will surge 400% in a year
- Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
How does a HELOC work?
A HELOC is a loan that lets you borrow against the equity in your home, which is the difference between what your home is worth and what you still owe on your mortgage. In Carol’s case, the large gap between her home’s value and mortgage balance made it easy to qualify for a sizable line of credit.
HELOCs are commonly used for major expenses tied to the home itself, such as renovations, repairs or consolidating higher-interest debt. But because they work much like a revolving line of credit, they can also make it tempting to spend on things unrelated to housing — a trap Carol acknowledged she fell into.
Most HELOCs have variable interest rates, and lenders typically allow you to borrow up to a set percentage of your available equity, according to the Federal Trade Commission (2). During the draw period, borrowers can repeatedly access funds without reapplying, which adds both flexibility and risk.
Once the draw period ends, repayment begins. Some plans require borrowers to start paying down principal over 10 to 15 years, while others end with a large balloon payment. If you can’t make that payment, you may need to refinance or find another way to pay. Otherwise, you could lose your home.
Risks of a HELOC
Other things to keep in mind if you are considering a HELOC are keeping your spending in check, and what would happen if the value of your home fell.
Advertisement
According to a CBS report, if the value of your home drops significantly enough that it would cut into the equity you were approved for, a lender could take actions such as reducing your credit limit, freezing your HELOC, requesting a new appraisal or increasing your interest rates (3).
These actions would be in line with whatever your loan agreement states, but if your lender took such actions, you should review your loan agreement. According to the report, there is also a rarely invoked clause that can, if home values plummet, allow your lender to “call” your HELOC — and demand repayment.
Another risk of HELOCs is that you might overspend, as was the case with Ramsey Show caller Carol. Just like a credit card, a HELOC can give you a false sense of how much you have to spend, but with a HELOC, you’re spending the equity you’ve built in your home. Since the risks are higher with a HELOC — your home is literally on the line — it is very important to take your spending seriously, and budget for how you are going to make payments.
It is also important to remember that for HELOCs with interest-only repayments, you are not paying down any of the principal with your monthly payments. They will also typically have a balloon payment. As the FTC notes, “the balloon payment is often large because it includes the unpaid principal balance and any remaining interest due” (4).
HELOCs can be an appealing option for homeowners that need to borrow money, because they typically have lower interest rates than other borrowing options that don’t use your home as collateral. When it comes to paying off your HELOC, build a budget that includes as aggressive a repayment amount as possible. If you get a windfall, you could use it to make a lump sum payment, but check your loan agreement to make sure there will be no pre-payment penalties (5).
For Carol, the Ramsey Show hosts made one thing clear: the issue wasn’t access to credit, but how easily that access had replaced disciplined spending. These loans can be useful tools — but when they start functioning like a catch-all credit card, the risks rise quickly. Carol’s call is a reminder that borrowing against your home demands not just a plan to repay it, but the discipline to treat that debt with the seriousness it deserves.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
The Ramsey Show Highlights (1); FTC (2, 4); CBS (3); Citizens Bank (5)
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- This 20-year-old lotto winner refused $1M in cash and chose $1,000/week for life. Now she’s getting slammed for it. Which option would you pick?
- Warren Buffett used these 8 repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Rebecca Payne has more than a decade of experience editing and producing both local and national daily newspapers. She's worked on the Toronto Star, the Globe and Mail, Metro, Canada's National Observer, the Virginian-Pilot and Daily Press.
