Quick answer: Home equity borrowing, such as a HELOC or home equity loan, may carry a much lower interest rate than a credit card because your home secures it. On a $30,000 balance at 20%, you would pay about $6,000 a year in interest. Moving that balance to a lower-rate home equity option can reduce interest, but the debt becomes secured by your home, and HELOC rates are usually variable.
If you’re a homeowner carrying credit card balances from month to month, there’s an important number worth looking at:
Your interest rate.
Credit cards are one of the most expensive common ways to borrow money. When you’re paying a high interest rate every month, a significant portion of your payment can go toward interest instead of reducing what you owe.
Homeowners with available equity may have another option: a Home Equity Line of Credit, or HELOC.
What Is Your Credit Card Debt Really Costing You?
Consider a homeowner carrying a $30,000 credit card balance at a 20% interest rate.
If that balance stays around $30,000, that’s approximately $6,000 per year in interest.
Put another way:
That’s roughly $500 every month coming out of your pocket just for interest—without reducing the $30,000 balance at all.
That’s why the interest rate matters so much. The higher the rate, the harder your monthly payment has to work just to get ahead of the interest.
Is a HELOC Interest Rate Lower Than a Credit Card Rate?
Often, yes.
A HELOC allows qualified homeowners to borrow against the available equity in their home. Because your home secures the line of credit, HELOC interest rates are typically substantially lower than regular credit card rates.
That difference can create an opportunity.
If you’re carrying credit card debt at a high interest rate and qualify for a HELOC at a substantially lower rate, moving that debt could significantly reduce the amount of interest you’re paying.
That means more of your money can be available to actually eliminate the debt.
Next step: Curious what your own balances are costing you? Share your home value, mortgage balance and card debt and a loan officer will compare your payments.
No obligation. It only takes a few minutes.
Does a HELOC Get Rid of Credit Card Debt?
No—and this distinction is important.
You’re not making the debt disappear. You’re changing where the debt is held and potentially how much it costs you.
If $30,000 moves from a high-interest credit card to a lower-interest HELOC, you still owe $30,000.
The financial opportunity comes from lowering the interest rate and then using those savings to help pay down what you owe faster.
What Are the Risks of Using a HELOC to Pay Off Credit Cards?
A HELOC is secured by your home. Credit card debt generally isn’t.
That means using home equity to consolidate credit card balances should be done thoughtfully. If you don’t repay the HELOC as required, your home could be at risk.
HELOC rates are also typically variable, meaning the interest rate and payment can change over time.
And there’s another potential trap:
Paying off your credit cards and then running the balances back up.
If the spending that created the debt continues, you could eventually have both a HELOC balance and new credit card debt.
Is Using Home Equity to Pay Off Credit Cards Right for You?
If you’re a homeowner carrying significant credit card debt, don’t assume paying 20% or more in interest is your only option.
Consider the $30,000 example again.
About $500 per month could be going toward interest without reducing the balance.
A substantially lower interest rate could change that equation.
At Tithe Lending, we can compare your current credit card rates with available home equity options and show you the numbers—so you can decide whether using your equity could help you pay less interest and get out of debt faster.
Frequently Asked Questions
Can I use a HELOC to pay off credit cards?
Yes. Many homeowners use home equity to pay off high-interest credit cards or personal loans. At Tithe Lending, the payoff can be sent directly to your creditors at closing.
Will paying off credit cards with a HELOC hurt my credit score?
It can go either way. Lower card balances can improve your credit utilization, but a new credit inquiry and account can cause a temporary dip, and running the cards back up can hurt you.
Is HELOC interest tax deductible when used to pay off debt?
According to IRS Publication 936, home equity interest is deductible only when the funds are used to buy, build or substantially improve the home that secures the loan. Interest on money used to pay credit cards generally is not. Ask a tax professional about your situation.
How much equity do I need?
Lenders usually limit the total of your mortgage and the new loan to a percentage of your home’s value, often 80% to 90%. For example, at 80% on a $600,000 home the combined limit is $480,000, so with a $280,000 mortgage about $200,000 could be available. A loan officer can confirm your own number.
Next step: Want to see whether your equity could cut what you pay in credit card interest? We will compare your current rates with your home equity options and show you the numbers.
No obligation. A home equity loan is secured by your home, so we will walk through the risks with you too. It only takes a few minutes.
Sources
- CFPB, Home equity loans and HELOCs: what is the difference?
- IRS Publication 936, Home Mortgage Interest Deduction
Method: Payments and interest figures are calculated with the standard fixed-rate amortization formula. They exclude taxes, insurance, mortgage insurance and closing costs, and are examples, not offers.
Tithe Lending LLC | NMLS #2439006 | Equal Housing Lender. General information only; not a loan offer or financial, tax or legal advice.