The Benefits of Paying Off Credit Card Debt with a Home Equity Loan or Home Equity Line of Credit (HELOC)
In today’s economic climate, many Americans are burdened with credit card debt, which can quickly become overwhelming. With the average credit card interest rate currently over 20%, it’s easy to see why carrying a balance month after month can severely impact your financial health. Luckily, if you own a home, there may be a more cost-effective way to tackle this debt: using a home equity loan or a home equity line of credit (HELOC).
Why Credit Card Debt is So Costly
Credit cards are a convenient tool for managing day-to-day expenses, but they come with a major downside: high-interest rates. The national average credit card APR is currently hovering above 20%, and in many cases, it’s even higher depending on your credit score and card terms. Paying off debt with such steep rates means a large chunk of your monthly payments goes toward interest, rather than reducing the principal balance. As a result, it can take years to pay off even a moderate balance.
Home Equity Loans and HELOCs as a Solution
If you’re a homeowner, a home equity loan or HELOC can be a powerful tool for reducing your debt faster and with less interest. Both options allow you to borrow against the equity you’ve built in your home, offering a significantly lower interest rate compared to credit cards.
Lower Interest Rates
Home equity loans and HELOCs typically have interest rates that can be half (or even less) than what you’re currently paying on your credit cards. For example, while credit cards have an average interest rate of over 20%, home equity products often offer rates that can be less than half of that, depending on the lender and your creditworthiness. By transferring your high-interest debt to a lower-rate loan, you can immediately start saving on interest costs.
Fixed or Flexible Repayment Options
A home equity loan typically offers a fixed interest rate and a set repayment schedule. This makes it an excellent choice if you prefer the predictability of consistent monthly payments. On the other hand, a HELOC offers a revolving line of credit, similar to a credit card, but with much lower interest. HELOCs often have variable rates, allowing flexibility in how and when you borrow. Both options allow for structured repayment plans that are often much more manageable than juggling multiple high-interest credit card payments.
Potential Tax Benefits
In some cases, the interest paid on a home equity loan or HELOC may be tax-deductible, particularly if the funds are used to make home improvements. While the tax law changes in recent years have tightened the rules on these deductions, please consult with your tax advisor to see if you could benefit from any potential deductions.
Is It the Right Move for You?
Paying off high-interest credit card debt with a home equity loan or HELOC can be a smart financial move if done responsibly. With much lower interest rates, more predictable payments, and potential tax advantages, it’s an option worth considering for homeowners looking to regain control of their finances. By leveraging the power of home equity, you could dramatically lower your monthly payments and start making real progress on paying off your debt — putting you back on the path to financial freedom.