Should You Use a Home Equity Loan or Line of Credit to Pay Off Credit Card Debt?

Using a home equity loan to pay off credit cards can be a smart way to reduce high-interest debt and streamline your payments into one manageable loan. With lower interest rates than credit cards, this option can save you money over time.

However, it’s not without risks. Since your home serves as collateral, missed payments could lead to foreclosure, and it doesn’t address the spending habits that may have caused the debt in the first place. In this guide, we’ll dive into the pros and cons, explain the process, and explore alternatives to help you determine if it’s the right choice for your finances.

Why use a home equity loan to pay off credit card debt?

Equity is the difference between your home’s current fair market value and your mortgage balance. So as you pay off your mortgage, your equity increases. It also increases as your home rises in value.

Once you build enough equity, you can leverage it with a home equity loan or HELOC (home equity line of credit), which essentially turns that equity into cash you can use for any purpose—including paying off credit cards and other types of debt.

You might want to do this for several reasons:

1. Home equity loans are secured by collateral (your house), so they often have much lower interest rates than credit cards.
2. They allow you to roll your card balances into a single payment, making tracking and repaying easier.

Should you use a home equity loan to pay off credit cards?

Despite the advantages, using equity to pay off your credit cards isn’t always the answer. You’ll want to consider the drawbacks before choosing this path:

1. Home equity loans use your home as collateral. You risk foreclosure if you fail to make payments. This is different from unsecured credit cards. With both financing options, if you fail to make payments, your credit score will decrease. However, if you default on your credit card payments, you won’t risk losing your home.
2. Home equity loans don’t address the root of the problem. If you have trouble keeping your spending in check, you could find yourself right back where you started—with high credit card bills. 

Pros and cons of using a home equity loan to pay off credit card debt

With any financial product, you should consider the pros and cons—and home equity loans are no different. See below to understand the full scope of these products and how they can affect your household.

✅ Pro: Lower interest rates

Credit cards tend to have much higher rates than home equity loans because collateral does not secure them. So when you use a home equity loan to pay off your card balances, you replace those higher rates with a lower one—saving on interest in the long run.

✅ Pro: Streamline payments

Using a home equity loan to pay off your credit cards streamlines the balances into one single loan. You no longer have several credit card payments to make each month and, instead, will make just one payment to your home equity lender. 

This can make staying on top of your payments easier, and it can also help with general household budgeting.

✖️ Con: Puts your home at risk

The major downside is that home equity loans put your home in jeopardy. With these loans, your house is the collateral. While that can mean lower interest rates, it also comes with serious risk. If you don’t pay, the lender can foreclose on the home to recoup its losses. 

✖️ Con: Interest payments aren’t tax-deductible

Another major downside is that the interest isn’t tax-deductible with home equity loans—at least not if you use the money to pay off credit cards. 

If you use the funds to improve your home, you may be able to write off the interest. Talk to a tax professional if you’re considering this.

Will a home equity loan cover the total amount of credit card debt?

A home equity loan might cover all your credit card balances, but not always. It depends on your equity and total credit card debt.

Most lenders will allow up to an 80% to 90% combined loan-to-value ratio (CLTV). You can borrow up to that percentage of your home’s value across your mortgage and home equity loan. 

Let’s say your lender allows up to a 90% CLTV. If your home is worth $350,000 and you still owe $250,000, you could borrow up to $65,000 (350,000 x .90 – 250,000). In this scenario, if your credit card balances were less than $65,000, a home equity loan could pay off all your credit card debt. 

How to use a home equity loan to pay off credit card debt

If you’ve considered the pros and cons of using a home equity loan to pay off credit card debts and are ready to move forward, use the below guide, which offers step-by-step instructions on how to get approved, get your funds, and pay off your credit cards.

How to use a home equity loan to pay off credit cards

You might use two types of home equity products to pay off credit cards: a home equity loan or a home equity line of credit (HELOC). 

With home equity loans, you get a lump sum after closing. You then repay the loan in fixed monthly payments over an extended period of time (usually between five and 30 years). 

Here’s how you can get a home equity loan:

1. Determine how much equity you can access. To calculate how much money you could get with a home equity loan, multiply your home’s value by the lender’s maximum CLTV (often 80% to 90%) and then subtract your mortgage balance.
2. Get preapproved with several lenders. You’ll need financial information including your mortgage and home value. Some lenders may require hard credit checks for this, so apply in quick succession (bureaus count all inquiries within 30 to 45 days as one) to minimize the impact on your credit score.
3. Compare lenders. Use your preapproval quotes to compare lenders on rate, fees, closing costs, terms, and other details, and choose one to move forward with.
4. Fill out your application and provide documentation. You’ll need to fill out the lender’s full application and provide any financial documents it requests. These may include tax returns, bank statements, or pay stubs. The lender may also verify your employment.
5. Close on your loan. Once you sign your paperwork and pay the required closing costs, you’ll get your funds and can pay off your credit cards. Some home equity lenders will pay your creditors. You’ll then begin paying your home equity lender back with monthly payments.

The home equity loan process takes at least a few weeks.

How to use a home equity line of credit to pay off credit cards

HELOCs are different from home equity loans. They turn your equity into cash but not in a lump sum. Instead, your equity is a credit line you can withdraw funds from as needed. It works much like a credit card with a much lower interest rate.

HELOCs typically come with variable interest rates, meaning their rate and your payment can change. 

To get a HELOC, you’ll need to:

1. Determine how much equity you can access. Most HELOC lenders will lend you up to 80% to 90% of your home’s value minus your mortgage balance. To determine how much money you could get with a HELOC, multiply your home’s value by the lender’s percentage and then subtract your current mortgage balance.
2. Get preapproved with several lenders. You’ll need financial information and details about your mortgage and home value. Some lenders may require a hard credit check. This could affect your credit score, so make sure to apply for all your preapproval quotes within a 30-day window.
3. Compare lenders. Use each lender’s quote to compare the rates, fees, closing costs, terms, and other details, and choose a lender to proceed with.
4. Fill out your application and provide documentation. Next, fill out your lender’s full loan application and provide the requested financial documents. These may include tax returns, W-2s, and bank statements.
5. Close on your loan. Sign your paperwork and pay any required closing costs. Then you can withdraw from your credit line to pay off your credit card debts. 

Typically, you’ll make interest-only payments for the first 10 years of a HELOC. You’ll begin paying the lender back in full once that period (the draw period) ends. 

Alternatives to using a home equity loan to pay off credit card debt

Home equity loans aren’t the only way to pay off credit cards, so if they feel too risky, consider one of the below options as an alternative.

Remember: Whichever route you choose, you should shop around for your lender, as it could save you on interest in the long run. You should also be mindful of your spending habits, or you could find yourself in a similar high-debt situation.

0% balance transfer card

One alternative is a balance transfer card. These credit cards allow you to roll other card balances onto them and pay zero interest for a limited period of time, often one to two years.

These can be smart options if you know you can pay off your balance in that time, but if not, proceed with caution. Once your 0% rate expires, a much higher one will likely replace it.

Personal loan

A personal loan—sometimes called a debt consolidation loan—is another option. Typical personal loan rates are lower than credit card rates, so they’ll save you money in the long run. They’re also unsecured, meaning they won’t put your home at risk.

Debt consolidation loans allow you to combine multiple credit card balances into one, simplifying your payments and potentially lowering your interest costs. Shopping around for lenders can help you find the best terms and save even more money.

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Happy Money is our pick for the best personal loan for credit card debt. Also check out all of our top personal loan recommendations.

Debt relief

Debt relief programs involve negotiating with creditors to lower your balances or make your payments more manageable. These programs don’t require borrowing money or putting up collateral, which means your home is never at risk.

However, debt relief has trade-offs. Participating in these programs can negatively impact your credit score, especially if they require you to stop making payments during negotiations. There are also fees involved, and not all creditors will agree to negotiate.

Debt relief may be a good option for those in significant financial distress who cannot qualify for loans or other alternatives.

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Debt relief vs. debt consolidation