If you are carrying $40,000, $50,000 or even $60,000 in credit-card debt at a high APR, the interest alone can feel brutal.
And here is what a lot of homeowners overlook:
If you have built significant equity in your home, you may be able to use a HELOC to pay off credit card debt without replacing your existing first mortgage.
That can be especially worth exploring if you already have a very low mortgage rate that you do not want to give up.
But this strategy comes with real risks, so let’s break it down.
Now, here is where it gets important.
A lot of homeowners making those credit card payments also have a lot of equity in their home.
If that is you, a home equity line of credit, also called a HELOC, may be something worth looking into.
A HELOC Usually Does Not Replace Your First Mortgage
A home equity line of credit is generally a separate loan secured by your home.
If you already have a first mortgage, the HELOC usually sits behind it as a second mortgage.
That means your existing first-mortgage rate, remaining term and principal-and-interest payment generally stay in place.
You are adding a separate line of credit rather than refinancing the entire first mortgage.
That can be useful for homeowners who locked in a low mortgage rate several years ago and do not want to replace it with today’s financing.
Learn more about how a home equity line of credit works before comparing options.
That can be a big deal for homeowners who do not want to lose a low 2%, 3%, or 4% mortgage rate.
Why Would Someone Use a HELOC for Credit-Card Debt?
The main reason is the interest-rate difference.
Credit cards often carry much higher rates than loans secured by real estate. A qualified homeowner may be able to move multiple high-interest revolving balances into one HELOC with a lower rate.
That could potentially:
- Reduce monthly interest expense
- Simplify multiple payments into one
- Lower the required monthly payment
- Make it easier to aggressively attack the principal balance
But lower monthly payments do not automatically mean lower total cost.
You still need to compare the HELOC rate, fees, repayment period and how quickly you plan to pay the balance down.
Use the HELOC payment calculator to estimate the payment under different balances and rates.
The Biggest Risk: Your House Is Now the Collateral
This is the part nobody should gloss over. Credit-card debt is generally unsecured. A HELOC is secured by your home.
So when you use a HELOC to consolidate credit cards, you are not making the debt disappear. You are moving the debt from one type of financing into another.
If you cannot repay the HELOC, your home could potentially be at risk.
You also need to remember that many HELOCs have variable interest rates. That means the rate and payment could increase over time.
Before applying, review the HELOC requirements and understand the draw period, repayment period and rate structure.
Do Not Pay Off the Cards and Run Them Back Up
This is probably the biggest behavioral risk.
If you use $50,000 of home equity to pay off $50,000 of credit cards, then immediately charge those cards back up, you have made the situation worse.
Now you have:
- The HELOC balance
- New credit-card balances
- More total debt
- Your house securing part of that debt
The strategy only works if debt consolidation is paired with a plan to stop adding new revolving debt.
The goal should be to use the lower interest expense or lower required payment to aggressively reduce the HELOC balance—not create additional spending room.
HELOC vs. Cash-Out Refinance for Debt Consolidation
A HELOC is not your only home-equity option.
A cash-out refinance may also provide funds to consolidate debt, but it replaces the existing first mortgage.
If you currently have a very low first-mortgage rate, replacing the entire loan may not make sense just to access equity.
That is why homeowners should compare a cash-out refinance vs. HELOC before making the decision.
There is no universal winner.
The right choice depends on your existing mortgage rate, equity, credit, debt balances, HELOC terms and how quickly you plan to repay the debt.
If high-interest credit-card payments are crushing your monthly budget, run the numbers first.
Then complete Mortgage Match to see which home-equity options may fit your situation.
Compliance Disclaimer
This content is for educational purposes only and is not financial, legal, tax or credit advice. A HELOC may not be appropriate for every homeowner. HELOC rates, credit limits, payments, fees and qualification requirements vary by lender and borrower profile, and many HELOCs have variable interest rates. Using home equity to consolidate unsecured debt converts some or all of that debt into debt secured by your home. Failure to repay a HELOC could result in foreclosure. Debt consolidation does not eliminate debt and may increase total borrowing costs if balances are repaid over a longer period. Loan approval is subject to credit review, property eligibility, equity requirements, program guidelines and underwriting. This is not a commitment to lend. Andes Mortgage LLC, NMLS #2187991. Marcos Zambrano, NMLS #988935. Equal Housing Opportunity.