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Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. SHARE: GaudiLab / Shutterstock.com April 14, 2022 Checkmark Bankrate logo How is this page expert verified? At Bankrate, we take the accuracy of our content seriously. "Expert verified" means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced. Their reviews hold us accountable for publishing high-quality and trustworthy content. Nicole Dieker has been a full-time freelance writer since 2012—and a personal finance enthusiast since 2004, when she graduated from college and, looking for financial guidance, found a battered copy of Your Money or Your Life at the public library. In addition to writing for Bankrate, her work has appeared on CreditCards.com, Vox, Lifehacker, Popular Science, The Penny Hoarder, The Simple Dollar and NBC News. Dieker spent five years as writer and editor for The Billfold, a personal finance blog where people had honest conversations about money. Dieker also teaches writing, freelancing and publishing classes and works one-on-one with authors as a developmental editor and copyeditor. Mariah Ackary is a personal finance editor who joined the Bankrate team in 2019, excited by the opportunity to help people make good financial decisions. Send your questions to Bankrate logo The Bankrate promise
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A , or HELOC, allows you to take out credit against the available equity in your home. Your home does not need to be paid off in order to be eligible for a HELOC. With a HELOC, you receive a line of credit based on a percentage of your home’s value minus the amount of money you still owe on your home. If your home is worth $800,000 and you still owe $100,000, for example, requesting a HELOC at 50 percent of the value of your home and subtracting the $100,000 owed would give you $300,000 in credit. A HELOC offers a similar to a credit card, which means you can borrow money, pay it back, and borrow again. This is what differentiates a HELOC from a , which offers a single lump sum that must be paid back within a designated time period. A typical HELOC lasts for about 25 years and includes both a draw period and a repayment period. During the draw period, which might last for up to 10 years, you are allowed to draw money from your line of credit. During the repayment period, which lasts for the remainder of the HELOC term, you will no longer be able to draw from your line of credit and will need to pay back any money owed. You’ll be paying interest on your HELOC during both the draw and repayment periods, so do some comparison-shopping beforehand to secure the . How can you use a HELOC to consolidate credit card debt
If you want to and pay it off quickly, a HELOC is one way to get the job done. Simply apply for a HELOC and use the line of credit to pay off your credit card debt. You’ll still have to pay off the money you borrowed from your HELOC, but you’ll generally have a longer period of time in which to make the payments and your HELOC will likely have a much lower interest rate. Advantages of paying off credit cards with a HELOC
You can pay off all your credit cards at once
Instead of trying to pay off credit card debt bit by bit (maybe with the ), a HELOC lets you pay off your credit card debt all at once. If you are currently feeling overwhelmed by credit card debt, using a HELOC to pay off your debt can provide significant mental relief. Your interest rate will be lower
The average credit card interest rate is . The is 4.27 percent as of December 15, 2021. Keep in mind that these are , which means they can go up or down depending on the prime rate—but even if your HELOC interest rate goes up, it’s still likely to be much lower than your credit card interest rate. Disadvantages of paying off credit cards with a HELOC
You might end up in even more debt
Nobody pays off their credit cards with the intention of going right back into credit card debt again—but if you don’t practice , you could find yourself right back where you started. If you use a HELOC to pay off your credit cards and then build up a bunch of new credit card debt, you’ll have both the credit card debt and the HELOC debt to pay back. That might be more than your finances can handle. You might lose your home
HELOC debt is , which means that if you don’t pay it off in full, the lender has the right to claim whatever you put down as collateral. With a HELOC, that’s your home. When you take out a HELOC, you run the risk of foreclosure if you miss payments or can’t pay back the principal within the designated time period. The bottom line
There are other tools to help you consolidate and pay down your debt quickly. A or a , for example, can help you pay off existing credit card debt during an intro APR period. You can also work with a to manage your finances and pay off your debt over time. When it comes to repaying debt, you have a lot of options—and taking out a HELOC to pay off your credit cards is just one of them. SHARE: Nicole Dieker has been a full-time freelance writer since 2012—and a personal finance enthusiast since 2004, when she graduated from college and, looking for financial guidance, found a battered copy of Your Money or Your Life at the public library. In addition to writing for Bankrate, her work has appeared on CreditCards.com, Vox, Lifehacker, Popular Science, The Penny Hoarder, The Simple Dollar and NBC News. Dieker spent five years as writer and editor for The Billfold, a personal finance blog where people had honest conversations about money. Dieker also teaches writing, freelancing and publishing classes and works one-on-one with authors as a developmental editor and copyeditor. Mariah Ackary is a personal finance editor who joined the Bankrate team in 2019, excited by the opportunity to help people make good financial decisions. Send your questions to Related Articles