Can You Use A HELOC For Credit Card Debt Consolidation?
Author:
Ashley KilroyOct 2, 2024
•5-minute read
If you're among the 46% of Americans with credit card debt, you might be looking for ways to make your debt more manageable. One solution for homeowners is a home equity line of credit (HELOC). A HELOC allows you to consolidate multiple credit card balances into one payment plan with a potentially lower interest rate. Homeowners can use a HELOC to borrow against the equity in their homes, which is the difference between the home's market value and the balance owed on the mortgage.
While Rocket MortgageⓇ doesn't provide HELOCs, we can help you understand the pros and cons of getting one and compare them with other home equity options. Let's dive into the details and explore what you need to know.
Advantages Of Using A HELOC To Consolidate Credit Card Debt
Depending on your situation, using a HELOC to consolidate your credit card debt can be a good option. A HELOC gives you the opportunity to qualify for lower interest rates and possibly better repayment terms compared to what you're currently paying on your credit cards.
Lower Interest Rates
One of the main reasons to use a HELOC to pay off credit card debt is the chance to get a lower interest rate. Credit card APRs can be much higher, sometimes reaching 25% – 30%. In contrast, HELOCs offer lower rates, typically ranging from 8% – 10%, usually because they are secured by your home. This lower rate can significantly reduce the total cost of your debt over time and free up funds to pay down your debt faster each month.
Flexible Terms For Repayment
HELOCs usually offer more flexible repayment terms compared to credit cards. During the draw period, which is typically the first 5 – 10 years after opening, you usually only need to pay interest or make interest plus principal payments. This flexibility can help you manage your cash flow and allow you to reduce the principal over time, essentially decreasing the amount you owe.
You Only Have To Make One Payment
Managing multiple credit card payments can be overwhelming. With a HELOC, you can consolidate all your accounts into one easy-to-manage monthly payment. Depending on your HELOC terms, this could even lower your monthly payments.