2 smart ways to borrow money for 2025 (and 2 risky ones)
With just weeks left in 2024, many Americans may find themselves reevaluating their financial circumstances. This can involve reviewing what worked over the last 12 months — and what didn't. And it may require exploring new ways to make ends meet going into 2025.
Not every borrowing option is equally as beneficial, however, and some may be more advantageous than others, especially in today's unique economic climate. Broadly speaking, however, there are some better ways to borrow money heading into the new year than others. And there are some particularly risky ways of doing so right now. Below, we'll detail which options to explore … and which ones borrowers may be better off skipping.
Start by exploring your potential home equity loan options here.
2 smart ways to borrow money for 2025
If you're one of the millions of homeowners in the United States, then you likely have two smart and relatively inexpensive ways to borrow money in 2025. Here's how you can do so via your home equity:
A home equity loan
The average home equity loan interest rate is just 8.40% right now. That's almost three times lower than the average credit card interest rate. And with the median home equity amount at approximately $320,000 currently, there's a lot of money to utilize at a low cost. Plus, if you use your home equity loan to make IRS-eligible home improvements, you may qualify to deduct the interest paid on the loan on your next tax return. So start shopping around online to see what rates and terms you may qualify for now (you don't need to use your current mortgage lender to borrow from your home equity).
Start shopping for low-rate home equity loans online today.
A HELOC
A home equity line of credit (HELOC) allows you to withdraw from your home equity like a home equity loan would, except you'll do so via a revolving line of credit instead of a lump sum. Rates on HELOCs just hit 8.55% — their lowest in all of 2024. Plus, borrowers will only need to pay interest on the amount of money they borrow, not the full line of credit they've been approved for. And the same tax benefits apply here as they do with home equity loans. With HELOCs having variable interest rates subject to additional declines as the overall rate climate cools, this is arguably one of the very best ways to borrow money right now.
Learn more about your HELOC options here.
2 risky ways to borrow money for 2025
And here are two less advantageous ways to borrow going into the next 12 months:
A credit card
The average credit card interest rate is now 23.37%. That's more than $23 in interest for every $100 borrowed. So, if you can, avoid using your credit card as much as possible right now. Don't expect rates on this product to decline in the new year, either, even if rates on other products do. Credit card interest rates are impacted by a complex and interrelated set of factors, of which the federal funds rate is just one component. Explore other ways to borrow money instead, even if you don't have a home to use equity from now.
Do you have high-rate credit card debt now? Learn how to get rid of it here.
A personal loan
Sure, the average personal loan interest rate is almost half of what credit card rates are (currently at 12.31%). But that doesn't exactly make them affordable, either, especially compared to home equity loans and HELOCs. So, if you can, try avoiding the personal loan route right now. Rates are high and will take most of 2025 or longer to drop to where home equity rates already are. In other words: If you're comfortable using your home equity, it makes sense to substitute it for a personal loan.
The bottom line
Borrowing money in today's evolving rate climate comes with inherent risks and opportunities. Navigating them will require a strategic and nuanced approach. By considering the above ways to borrow and others to avoid, you'll better be able to set yourself up for financial success both in 2025 and, hopefully, in the subsequent years to come.
