Should You Use a Home Equity Loan or HELOC to Pay Off Credit Cards?

As a Certified Financial Education Instructor (CFEI®), I often hear from homeowners looking for ways to tackle high-interest credit card debt using the equity they’ve built in their homes. Two of the most common options are a home equity line of credit (HELOC) or a home equity loan.

The Certified Financial Planner (CFP®) we spoke with for this article says he often recommends a HELOC for paying off credit card debt—but only when borrowers fully understand the trade-offs and have a solid repayment plan in place.

In this guide, we’ll explain how using a HELOC or home equity loan to pay off credit cards works, when and if it makes sense, and what alternatives you might consider instead.

Table of Contents

1. How do you use a home equity line of credit to pay off credit cards?
   1. How do you use a home equity loan to pay off credit debt?
2. Should you use home equity to pay off credit cards?
3. Pros and cons of using a HELOC to pay credit card debt
   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
4. Our top tips for using home equity for credit card debt
5. Other ways to pay off credit card debt without risking your home
   1. Debt consolidation loan
   2. Balance-transfer credit card
   3. Debt management plan
   4. Debt settlement

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

A HELOC works like a revolving line of credit secured by your home. You can borrow, repay, and borrow again during the draw period. Using one to pay off credit cards simply means replacing high-interest debt with lower-interest, secured financing.

Here’s how it works.

1. Access your funds. Draw from your HELOC as needed during the draw period.
2. Pay off your credit cards. Use the funds to pay each balance directly or transfer the money to your checking account first.
3. Stop using those cards. Avoid adding new charges so you don’t end up in more debt.
4. Repay your HELOC. Make consistent payments and pay extra when you can to reduce interest and pay off the balance faster.

How do you use a home equity loan to pay off credit debt?

Our CFP® expert says he usually recommends a HELOC for credit card debt because you can typically draw just what you need to pay off your credit cards. But a home equity loan might make more sense if you want access to more than you currently need or if interest rates are rising, since many HELOCs are variable rates.

A home equity loan gives you a fixed rate and set repayment schedule, which can make budgeting easier and help you avoid the temptation to keep borrowing.

Should you use home equity to pay off credit cards?

Using a HELOC or home equity loan to pay off credit cards can make sense for some borrowers, but only under the right conditions.

First, you need strong credit and enough equity in your home. Most lenders look for at least 15 to 20 percent equity and a solid credit score, typically 720 or higher, to qualify for the best rates. If you are already carrying a lot of credit card debt, that could make approval more difficult.

Just as important is your spending behavior.

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.

In short, a HELOC or home equity loan only helps if you have addressed the habits that caused the credit card debt in the first place. Otherwise, you could end up with both home-secured debt and new credit card balances.

Pros and cons of using a HELOC to pay credit card debt

Before you move forward, it’s worth understanding both sides. A HELOC can be a smart way to lower interest costs and simplify payments, but it also comes with real risks if you are not careful. Review these pros and cons before deciding if a HELOC is the right way to pay off your credit card 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.

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.

❌ 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.

❌ 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.

❌ 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.

Our top tips for using home equity for credit card debt

If you decide to move forward with a HELOC or home equity loan, a few smart choices can help you save money and stay disciplined.

• Check with your bank first. Opening your HELOC at the same bank where you keep your checking account makes it easier to move money and pay down the balance consistently.

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.

• Choose a HELOC with no fees or closing costs. Look for lenders that offer low- or no-fee HELOCs. Some lenders charge origination or closing fees that can add hundreds of dollars to your costs.

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.

• Understand first-draw requirements. Since some HELOCs require you to withdraw a minimum amount at closing, even if you do not need it all right away, it’s important to know this ahead of time . This way, you can plan how much to borrow and when to repay any unused funds.

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.

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.