How to Use a HELOC For Credit Card Debt Consolidation

Using a HELOC for credit card debt consolidation could be a smart choice for homeowners as it could move any debt to a lower interest rate and would mean you only have one monthly payment instead of multiple payments.

A HELOC, or home equity line of credit, typically works similar to a credit card. With a HELOC, you will be approved for a line of credit based on your home equity. You can draw on this line for a set number of years while only paying interest on the amount you use. After your draw period ends, you will have to pay back your loan amount and interest.

Other HELOCs will offer you a lump-sum amount based on your home equity that you could use to consolidate your credit card debt. With Rate’s HELOC option, you will have the choice to make additional draws as you start paying down your loan amount.

Because the interest on HELOCs tends to be lower than the interest on most credit cards, consolidating your debts under a HELOC could mean less money going toward your interest payments each month.

If you have multiple credit card debts, using a HELOC to consolidate them could reduce the  number of different payments you will have to worry about making. Instead of paying down multiple credit cards each month, you will only need to put money toward your HELOC.

To begin consolidating your credit card debt with a HELOC, you can start by applying for a HELOC today.

Yes, you can use a HELOC to consolidate any debt with a credit card company, but in doing so, you will have to pay back your HELOC with your mortgage lender.

Think of using a HELOC for credit card debt as transferring however many credit card debts you may have into one monthly payment. Using a HELOC this way could also save you money*, as HELOCs typically have lower interest rates than most credit cards.

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

Depending on your needs and situation, there could be some benefits and drawbacks to using a HELOC to consolidate credit card debt.

Pros:

• Lower interest rates: HELOCs tend to come with lower interest rates than most credit cards, meaning you could save on monthly payments.
• One payment: If you have multiple credit card debts you are trying to consolidate, using a HELOC could simplify your monthly payments into just one.
• Credit score boost: Reducing the amount of high interest debts you have with your HELOC could potentially raise your credit score**.
• Access to flexible funds: You may be approved for more than you need to pay down your debt. These extra HELOC funds could be used for any other expenses you may have.

Cons:

• HELOC minimums: HELOCs typically have a minimum amount of funds that you will have to draw on, which could be more than you need.
• Risk of overspending: Because you could have access to more funds than you need, you might be tempted to use it all after paying off your credit card debts.
• House as collateral: Credit cards are usually unsecured loans. HELOCs are secured by your home, which is why interest rates tend to be lower.
• Variable rates: Depending on your lender, your HELOC might come with a variable interest rate, making it hard to precisely predict your payments.

Both a HELOC and home equity loan are available to homeowners looking to tap into their home’s equity, and both can be used for debt consolidation. The big difference in the two is in how you receive your funds.

A HELOC typically works similar to a credit card, where you can make multiple draws on your approved amount. A home equity loan gives you your approved amount up front as a lump-sum.

HELOCs are beneficial when you may have rolling expenses, such as home improvements or tuition. Home equity loans are helpful when you need a large amount up front, such as investment opportunities or down payments on second homes. Both work well when looking to consolidate credit card debt.

To find out which is better for your situation, look at your total debt and the amount of home equity you have access to. If your debt is only a fraction of your total equity, a HELOC might be a better choice. If your debt is closer to your total equity, a home equity loan might be more helpful.

It is important to know that with a home equity loan, you will start making payments on your principal loan sooner than you would with a HELOC. If you are looking for a little time before having to pay back your loan’s principal, a HELOC might be a better option for you.

If you are looking to consolidate your credit card debt with your home equity, the first thing you will want to do is evaluate all credit card debt you have.

Evaluating your credit card debt is as easy as looking at all monthly payments you have and seeing your total debt amount. For some people, they might look at one statement, while others will have to add up their total debt from multiple credit cards.

When evaluating, it is important to look at the interest percentage you are paying with each credit card you have.

With the total debt and interests you are paying, you are ready to compare it to the amount of home equity you could get access to and what their rates might be. You can use an online HELOC calculator to get an idea of what rates or amount you might be able to get with your home equity.

If you have compared your credit card debt to the HELOC you could get and everything looks good, you will be ready to start your HELOC application.

*Savings, if any, vary based on the consumer’s credit profile, interest rate availability, and other factors. Contact Rate for current rates. Restrictions apply.

**Rate does not provide credit counseling or credit repair services.