Should You Use a HELOC to Pay off Credit Card Debt?

Many people struggle to pay off credit card debt. Interest that accumulates each month can make it difficult to make a dent in balances. Juggling multiple credit cards with different minimum payments and due dates can feel overwhelming. Missing a due date can lead to fees and possible damage to your credit score.

If you have lived in your home for several years, you may have built up a large amount of equity. You might be able to use a home equity line of credit, or HELOC, to pay off credit card debt. You could draw from a line of credit at the times and in the amounts of your choosing and consolidate your credit card debt to make one monthly payment instead.

Reasons to Use a HELOC to Pay off Credit Cards
If you have substantial credit card balances with high interest rates, using a home equity line of credit to pay them off might make sense. The interest rate on a HELOC could be significantly lower than the interest rates on your credit cards. That means interest would accumulate at a slower pace and more of each monthly payment would go toward principal, so you could pay off the debt faster.

Paying off credit card balances with a home equity line of credit could help your credit score. Reducing those balances to zero would lower your ratio of debt to available credit, and making HELOC payments on time each month could help you build a positive credit history.

Reasons to Think Twice
You would need to pay closing costs to obtain a home equity line of credit. Talk to your lender to find out exactly how much that would add to your total. Depending on your lender and the interest rates on your credit cards and a HELOC, you might or might not save much money.

A home equity line of credit could be risky. Using your home as collateral means that if you failed to make HELOC payments on time, you could risk foreclosure. That could cause major damage to your credit score.

If you got into debt because of a job loss or some other unforeseen situation, using a HELOC to manage credit card bills might make sense. If, on the other hand, you accumulated debt because you make frequent impulse purchases or don’t know how to budget, using a HELOC wouldn’t address the core problem, and you could wind up in the same situation again. Getting in the habit of accumulating debt and using your home’s equity to bail yourself out could be dangerous.

Is a HELOC a Good Idea?
A home equity line of credit could help you escape the trap of high-interest credit card debt, but it should be used responsibly. If you have a spending problem, a HELOC alone wouldn’t fix things. You would also need to change your spending patterns to get out of debt and stay that way.