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

If you’ve built enough equity in your home, you can use a home equity line of credit (HELOC) to consolidate high-interest credit card debt. But should you? According to the CFP® we consulted (more from him below), using a HELOC for this purpose can make sense for many borrowers.

Below, we’ll share when to use a home equity line of credit to pay off credit cards, the risks and drawbacks, and alternatives to consider.

Table of Contents

1. What to consider first
2. Pros and cons
   1. ✅ Pro: Lower interest rate
   2. ✅ Pro: One single monthly payment
   3. ✅ Pro: Low monthly payment
   4. ✅ Pro: Funds available for emergencies
   5. ❌ Con: Risk of foreclosure
   6. ❌ Con: Minimum draw amount
   7. ❌ Con: Potential closing costs and fees
   8. ❌ Con: Eligibility requirements
   9. ❌ Con: Variable rates
3. How to pay off credit card debt with a HELOC
4. Other ways to pay off debt without risking your home

What to consider before using home equity to pay off credit cards

As a Certified Financial Education Instructor, I often encounter homeowners with credit card debt who are tempted by the lower interest rates of a HELOC. I spent a few minutes in popular personal finance subreddits and surfaced myriad instances of people wondering whether they should use a HELOC to pay off credit cards:

HELOC to pay off credit card debt?
byu/nobuouematsu1 inCreditCards

Is it worth taking a HELOC to pay off credit card debt?
byu/3-Dog-mom inFinancialPlanning

The responses in these threads are well-intentioned, and some of the tips make sense. However, taking financial advice from strangers on the internet is always risky. I realize the irony in that I, too, am a stranger on the internet, but note that:

1. This is what I do for a living.
2. I still always recommend working with a financial advisor or credit counselor, if you can afford it.

On that note, our team spoke to Certified Financial Planner (CFP®) Michael Menninger to get his take, and here’s what he told us:

Before I recommend how to pay off credit card debt, it is important to understand the client’s spending habits. The last thing you want to do is consolidate debt with a HELOC and then rack up debt again.

If used properly, the HELOC can serve as an emergency reserve, and every bit of cash is used to pay down the HELOC, even if weekly. I always recommend HELOCs at the bank the client has their checking account, so it’s easy to move money.

Admittedly, the consequences of losing one’s home are far greater than simply defaulting on credit card debt, but I have never encountered that in my 25-year professional career, so the risk isn’t that high to me.

Remember: Before using a HELOC to pay off credit cards, you must ensure you have a high enough credit score and sufficient equity.

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

Review these pros and cons before deciding if you’ll use a HELOC to pay off your debt.

Pros	Cons
Lower interest rate	Risk of foreclosure
One single monthly payment	Minimum draw amount
Low monthly payment	Closing costs and fees
Funds available for emergencies	Eligibility requirements
	Long-term commitment
	Variable rates

✅ Pro: Lower interest rate

One of the biggest reasons to pay off credit card debt with a HELOC is to secure a lower interest rate. Both credit cards and HELOCs have variable rates (in rare cases, you can find HELOCs with fixed rates), but HELOC rates are notably lower.

At last glance, the national average HELOC rate is 8.10% In comparison, the average credit card interest rate is 21.16%, according to the latest data from the Federal Reserve Bank of St. Louis at the time of publication.

✅ Pro: One single monthly payment

If you’re juggling multiple credit cards with varying payment dates, it’s easy to miss a due date and incur late charges and potential negative marks on your credit report. Using a home equity line of credit to pay off your credit cards means you’ll only have one monthly payment date to remember.

✅ Pro: Low monthly payment

According to Michael Menninger, CFP®, the minimum payments for credit cards tend to be 2% to 3% of the balance, while a HELOC is about 0.6%, during the interest-only draw period.

• Imagine you’re carrying a $20,000 balance. On a credit card, the minimum payment might be $400 to $600 per month.
• With a HELOC, during the interest-only draw period, the minimum payment might be closer to about $120 per month. This allows the borrower the flexibility to make lower minimum payments—or, with the same payment, far more is being applied to the balance.

✅ Pro: Funds available for emergencies

People like credit cards because money is available when they need it. A HELOC offers the same access to funds when needed during the draw period.

While you should prioritize curbing your habit of borrowing when you don’t have the cash to pay it back soon after, quick access to money can be crucial in emergencies.

❌ Con: Risk of foreclosure

The biggest consequence of paying off credit card debt with a HELOC is that you could lose your home. Essentially, you’re switching from an unsecured loan (no collateral) to a secured loan (where your house serves as collateral).

In plain terms:

• If you default on your credit cards, you risk damage to your credit score, potential legal action, and collections activities.
• If you default on a HELOC, the lender can take your home from you, in addition to the major credit score damage.

Thus, defaulting on a HELOC has far greater consequences than defaulting on credit cards.

❌ Con: Minimum draw amount

If you’re trying to break the habit of borrowing, you should only borrow the amount you need to pay off your credit cards. However, some HELOCs have minimum draw amounts that may exceed what you owe.

For instance, two of the best HELOC lenders, Figure and Aven, require you to withdraw the full credit line at closing (and there are immediate principal and interest payments during the draw period); this is the trade-off for a fixed interest rate.

Many lenders will allow you to pay down the HELOC after 30 or 60 days, so you could pay back the extra then and not incur the additional interest on funds you didn’t need.

❌ Con: Potential closing costs and fees

Getting a home equity line of credit to pay off credit cards can cost money. Figure and Aven both assess origination fees of as much as 4.99% of the credit line for their fixed-rate HELOCs.

Where we live in Southeastern Pennsylvania, there are generally no closing costs for HELOCs. At most, there is a $100 court recording cost or an appraisal fee of $500.

❌ Con: Eligibility requirements

Not everyone is eligible for a HELOC. First, you’ll need to have built enough equity in your home. How much equity you need for a HELOC depends on the lender, but it’s usually between 15% and 20%.

You’ll also need to meet the lender’s minimum credit score requirements for a HELOC. Again, this varies. Many lenders say they want at least a 620 credit score, but we’ve observed that lenders are unlikely to approve those with FICO scores below 720. Lenders will also consider factors like your income and other debts.

❌ Con: Variable rates

One of the scariest parts of credit cards is their variable rates. Most HELOCs also have variable rates, which can make it harder to predict monthly payments down the road.

How to pay off credit card debt with a HELOC

If you’re comfortable with the cons I discussed above and think this approach makes sense for you, here’s how to get a HELOC for credit card debt. (If not, check out these alternatives that don’t risk your home.)

1. Evaluate your credit and equity

Before applying, make sure your credit score is strong enough (720 or higher). Many borrowers with credit card debt often have lower credit scores because of the high credit utilization and the occasional late payment.

You also need to ensure you’ve built enough equity in your home (at least 15%).

2. Research, prequalify with, and compare lenders

Narrow down your search to a handful of lenders. Using an online loan marketplace like LendingTree can be a good place to start.

Prequalify with the HELOC lenders and compare rates, terms, and fees to find the best match.

3. Apply online

Once you’ve selected your preferred lender, apply online. Here are the documents needed for a HELOC application.

4. Make a repayment plan

Your house is on the line when you use a home equity line of credit to pay off your credit cards, so make a plan to repay the loan quickly. Set up automatic payments, and add reminders to your calendar to ensure there’s always enough money in your account before the payment date.

Use these tips to manage HELOC repayments successfully.

Other ways to pay off credit card debt without risking your home

Putting your home up as collateral for a loan usually affords you lower rates and fees. However, it comes at a huge risk. If you’re not willing to put your house on the line to pay off your credit card debt, here are other options.

Debt consolidation loan

You can use a personal loan for almost anything, including debt consolidation. Personal loans don’t require collateral (like your house), but that means higher rates and fees. Personal loan interest rates average 11.30% to 25.20%, depending on your credit score.

Consider these debt consolidation loan pros and cons before moving forward.

Balance-transfer credit card

Fighting credit card debt with another credit card may sound counterintuitive, but balance-transfer credit cards could be your ticket out of debt.

The best balance-transfer cards have 0% interest for one to two years. You simply move all your other credit card debt to this new card (you’ll likely pay a fee of 3% to 5%), and then you must prioritize paying it off before interest kicks in.

Whatever you do, don’t be tempted to make purchases with the new card. The transferred debt is interest free during the promotional period, but new purchases will rack up interest right away.

If the “credit card shuffle” costs 3% to 5% at the onset, and you get one to two years at 0%, you have saved an enormous amount of interest. If necessary, do it again with another balance transfer. Just pay it down! This will help you lower the amount of interest you pay, so you can apply more of your payment toward the loan balance.

Debt management plan

If your credit card debt feels heavy but still manageable, a debt management plan (DMP) through a nonprofit credit counseling agency may help. (I’m a fan of American Consumer Credit Counseling.)

With a DMP, your counselor works directly with your credit card companies to secure lower interest rates and simplify payments into one monthly bill. Unlike debt settlement (mentioned below), these plans don’t reduce your principal balance, but they can make repayment more affordable without putting your home at risk.

Debt settlement

If your debt feels unmanageable, consider a debt settlement company as a last-resort option. Reputable debt relief firms (National Debt Relief is our top pick) negotiate with creditors to reduce the amount you owe, potentially saving you thousands. It also allows you to break the debt cycle, unlike a credit card balance transfer or a personal loan.

However, settlement programs can damage your credit, involve fees, and take years to complete. They differ from nonprofit DMPs in that they aim to cut balances, not just interest rates.

What about a home equity loan?

That depends on the current direction of interest rate environment (rising or falling), and if the client would like access to more than they currently need to pay off debt.

A home equity loan carries many of the same drawbacks as a HELOC for credit card debt; most notably, your house is still on the line. However, if tapping into your equity is the best path forward, I actually recommend a home equity loan over a HELOC for two reasons:

1. The interest rate is fixed, which makes budgeting for repayment easier.
2. It’s not a revolving line of credit, so you won’t be tempted to keep borrowing as time goes on.