Key takeaways
- Home equity loans and HELOCs are secured by your home. If you can’t pay, you could lose it.
- They may have lower rates than credit cards, but often come with closing costs.
- HELOCs usually have variable rates, and payments can rise sharply when the repayment period starts.
- If the card balances come back, you can end up with both the home loan and new card debt.
- Compare unsecured options first, like a debt management plan or consolidation loan.
If you own a home with some equity, you may see offers to “tap your equity” and pay off high-interest credit cards. The lower rate is real, and for some people it can work. But it changes the stakes: credit card debt that couldn’t take your home becomes debt that can. Here’s what to weigh.
How it works
There are two main ways to borrow against your home:
- A home equity loan: a lump sum, usually at a fixed rate, repaid in fixed monthly payments. See the CFPB’s explainer on home equity loans.
- A home equity line of credit (HELOC): a credit line you can draw on, usually with a variable rate. See the CFPB’s explainer on HELOCs.
Either way, you use the money to pay off your cards, then repay the home equity debt.
The main risk: your home
According to the CFPB, if you don’t pay back a home equity loan, you could lose your home in foreclosure. With credit cards, missed payments damage your credit and can lead to collections or a lawsuit, but your home isn’t directly collateral. This trade-off is the most important thing to understand. See secured vs. unsecured debt.
Other costs and risks
- Closing costs. The CFPB notes you may have to pay closing costs on a home equity loan, which eat into the savings.
- Variable rates on HELOCs. The CFPB’s HELOC guide explains that payments can change even if you don’t borrow more.
- Payment shock. HELOC payments are often much higher once the draw period ends and repayment begins. Some plans require a large balloon payment at the end.
- Frozen or reduced lines. Lenders can generally freeze or cut a HELOC if your home’s value falls or your finances worsen.
- Longer repayment. Spreading card debt over many years can mean paying more in total, even at a lower rate.
The biggest trap: the cards fill up again
After you pay off the cards, they have zero balances. If spending doesn’t change, they can fill up again, and you’re left with the home equity debt and new card debt. Before borrowing, be honest about why the balances built up and whether that has changed. A budget and closing or freezing cards can help.
When it might make sense
Only if all of these are true:
- You have steady income and can comfortably afford the new payment, even if a variable rate rises.
- The total cost, including closing costs, is clearly lower than your current path.
- You’ve addressed what caused the card debt and won’t run the cards back up.
- You have an emergency fund, so a surprise doesn’t put your home payment at risk.
Safer options to compare first
- A debt management plan through a nonprofit credit counselor, which may lower your rates without putting your home on the line.
- An unsecured consolidation loan or balance transfer, if your credit allows.
- A focused payoff plan with the debt avalanche or snowball.
Compare them side by side in debt management plan vs. consolidation loan.
Watch out for
Be wary of anyone pressuring you to borrow against your home quickly, or encouraging you to borrow more than you need. Read every document before closing, and ask about all fees.
The bottom line
Borrowing against your home can lower your interest rate, but it turns credit card debt into debt that can cost you your house. Compare unsecured options first, and talk to a nonprofit credit counselor through the NFCC before putting your home on the line.
Sources: CFPB: consolidating credit card debt · CFPB: what is a home equity loan · CFPB: what is a HELOC · CFPB: what you should know about HELOCs