Using a home equity loan to pay off credit card debt

Credit cards are such a common payment method that not everyone realizes they come with very high interest rates – currently hovering around 22% APR as of early 2026. As a result, once you have credit card debt, it can be notoriously difficult to pay it off. Across the country, Americans hold over $1.28 trillion in credit card debt with an average balance of over $6,700 per cardholder, according to TransUnion.

One solution that homeowners who’ve built enough equity can use for credit card debt relief is a home equity loan¹. By replacing high-rate, revolving debt with a lower, fixed interest rate, you can simplify your finances and potentially save thousands of dollars. However, it’s important to weigh those potential interest savings against the risk, as failing to repay the loan could result in foreclosure. Here’s a closer look at how to use a home equity loan to pay off credit card debt and the pros and cons of this option.

Key takeaways:

• A home equity loan allows you to consolidate high-interest credit card debt into one predictable monthly payment at a fixed interest rate.
• Because a home equity loan is secured by your house, missing payments puts you at risk of foreclosure.
• Approval typically requires at least 15% – 20% equity in your home, a solid credit score, and a manageable debt-to-income (DTI) ratio.

Home equity loans, explained

A home equity loan is a type of second mortgage that allows you to borrow against the equity you have built up in your property. You receive the funds as a single lump sum and repay the loan with fixed monthly payments over a set term, usually ranging from 5 to 30 years. Because your home acts as collateral, lenders can offer much lower interest rates compared to unsecured personal loans or credit cards.

However, this also means that you could lose your home to foreclosure if you fail to repay your home equity loan on time. Because a home equity loan is in addition to your mortgage, that means you have two separate loans and two monthly loan payments to make.

How home equity is calculated

Equity is the difference between your home’s value and the outstanding mortgage balance. You build equity as the home appreciates in value and as you make your down payment and monthly payments toward your mortgage principal. For instance, if your home is worth $400,000 and you owe $250,000, you have $150,000 in equity. Before you apply, using a home equity calculator can help you estimate your available borrowing power.

Should you use a home equity loan to pay off credit card debt?

There are cases when a home equity loan can be a great solution for credit card debt, and there are situations where another financing option might be better. The answer heavily depends on your financial discipline and your long-term goals.

When it may make sense

Consolidating your debt using home equity makes sense if you have multiple high-interest credit cards and can secure an interest rate that is significantly lower than the rates of your credit cards. This is a smart move if you have a stable income, a clear budget, and are committed to not running up your credit card balances again after paying them off. Be sure you can afford a second monthly mortgage payment alongside your current mortgage.

When it may not make sense

If you are struggling to make ends meet, have an unpredictable income, or have not addressed the spending habits that caused the debt, a home equity loan can be too risky. While credit card debt can be overwhelming, you may not be able to afford taking on a second mortgage payment each month. While credit card debt can certainly be overwhelming, you’d be taking on the added risk of losing your home if you can’t keep up with your payments. If your credit score is low, you may not be eligible for a home equity loan.

Benefits and drawbacks of using a home equity loan for credit card debt

Before tapping into your home’s value for a high-rate debt consolidation, it helps to weigh the pros and cons of a home equity loan.

Benefits

Using a home equity loan to pay off your credit card is likely to save you money and can make the process a bit simpler. Consider these advantages of consolidating your debt.

• Lower interest rates: Home equity loans generally feature lower rates (often under 10%) than credit cards, which frequently exceed 20%.
• One monthly payment: You replace multiple credit card bills with a single, predictable monthly payment, simplifying your budgeting.
• Fixed terms: Unlike variable credit card rates, a fixed home equity loan means your payment will never change.
• You’ll know when you’ll be out of debt. With a set repayment term, you’ll know exactly how long it will take to get out of debt if you stick to the term.

Drawbacks

While consolidating debt with a home equity loan can save you money, keep these risks in mind.

• Foreclosure risk: The biggest downside is that your property serves as collateral to secure the loan. If you fail to pay, the lender can foreclose on your home.
• Closing costs: Setting up the loan comes with upfront fees like a standard mortgage.
• Extended repayment: Spreading your debt over 10 to 20 years might result in paying more total interest over the life of the loan.
• A new loan may impact your credit score. When you apply for a new loan, your credit score might fall.

Unsecured debt vs. secured debt

When deciding if a home equity loan is right for you, it’s important to know the difference between secured and unsecured debt.

Credit cards are unsecured debt, meaning they are not tied to physical collateral. If you default, your credit score takes a hit, but the credit card company cannot seize your house. However, because unsecured debt is riskier for lenders, credit cards come with higher interest rates than secured debt.

A home equity loan is secured debt, meaning your home acts as the collateral. When you use home equity to pay off credit cards, you are converting unsecured debt into secured debt. Secured debt can get you a lower interest rate but puts your property at risk.

Costs, requirements, and timelines to know before applying

Getting approved for a second mortgage requires meeting specific lender guidelines and covering upfront expenses.

Common costs and fees

When you close on the loan, you will be responsible for home equity loan closing costs. These typically range from 2% – 5% of the total loan amount and cover expenses like an appraisal, a title search, and origination fees. Be sure to factor these costs into your overall savings calculation and confirm that you can afford to pay them upfront.

Home equity loan requirements

While finding the best home equity loan to pay off credit card debt requires shopping around, most lenders have similar baseline requirements:

• Equity: You generally need to have – and retain – at least 15% – 20% equity in your home.
• Credit score: Most lenders look for a minimum credit score of 680, though a higher score will secure the most competitive rates.
• Debt-to-income (DTI) ratio: Lenders typically need to see a DTI ratio that does not exceed 43% to make sure you’ll be able to meet your debt obligations.
• Proof of income: You’ll need to show lenders that you had steady income that allows you to afford to repay a new loan.

How long approval and closing can take

When you apply for a home equity loan, you don’t get the funds immediately. Your lender will need to complete the underwriting process and review your finances to confirm you can afford the loan. They’ll also need to have an appraisal done to determine how much equity you have. The entire process typically takes anywhere from 2 weeks – 2 months.

How to use a home equity loan to pay off credit card debt

Here’s a look at the steps you can take to use a home equity loan to consolidate your debt.

1.  Evaluate your current debts and credit score

List out all your credit card balances, current interest rates, and minimum payments. Check your credit score so you know whether you’re likely to be eligible for a home equity loan. You can also calculate your DTI by adding up all your minimum monthly debt payments and dividing that sum by your gross monthly income.

2.  Determine how much home equity you have

You can estimate the amount of equity you currently have by taking your current property value and subtracting what you still owe on your mortgage. Your actual property value won’t be determined until the appraisal is complete, but you can estimate its current value using real estate sites like Redfin and looking up how much similar homes in your area have sold for recently. Calculating your equity will give you a better idea of how much borrowing power you have available.

3.  Compare rates and alternatives

Be sure to shop around and compare loan estimates from different lenders to make sure you’re getting the best terms. Different lenders will offer varying interest rates and total closing costs. It’s also wise to understand alternative debt consolidation options that might be a better fit for your situation. More on that below.

4.  Apply, close and pay off your credit cards

Once you select a lender, complete the application and provide your financial documentation. After closing, use the lump sum to directly pay off your high-interest credit card balances.

5.  Make on-time payments and a financial plan

Commit to making your new home equity loan payment on time every month. Create a realistic budget to ensure you do not run up new charges on your freshly paid-off credit cards.

Home equity loan calculator: Estimating your payment and savings

You can use the home equity loan calculator from Rocket Mortgage to help you estimate how much equity you have and how much you may be able to borrow. Simply input your home’s estimated value, how much you still owe on your home, and your current credit profile.

How much would a $50,000 home equity loan be a month?

The amount you’d owe each month on a home equity loan depends heavily on your interest rate and loan term. For example, a $50,000 home equity loan with a 10-year loan term and 5% interest rate would have a monthly payment of $530.33. The same interest rate but a 20-year loan term would cost $329.98 per month. You’d have more time to pay off the loan, which would help reduce your monthly payment, but you’d end up paying twice as many years of interest. If your loan term was 10 years but your interest rate was 7%, your monthly payment would be $580.54.

How to compare credit card interest with home equity loan costs

To understand how much a home equity loan could help you save on credit card debt, you need to compare the interest rate on the cards and the interest rate you’d have on the loan. You’ll also need to compare the rate at which you could pay down your credit card debt with and without a home equity loan. Don’t forget to factor in the upfront costs of the home equity loan. Also consider the amount of interest you’re currently getting charged on your credit cards each month.

Alternative methods for paying down credit card debt

If you aren’t comfortable with the idea of using your home as collateral to borrow money, here are some other ways to pay down your credit card debt.

Personal loan

Unlike a home equity loan, a personal loan is a type of unsecured debt. That means you don’t have to risk losing your home if you can’t keep up with your personal loan payments. However, it also means you’ll likely be charged a higher interest rate. If the interest rate on a personal loan is comparable to that of your credit cards, this option might not make as much sense. Personal loans also tend to be for smaller amounts than home equity loans and have shorter repayment terms.

Home equity line of credit (HELOC)

A HELOC is a type of revolving credit that allows you to borrow against your home equity on an as-needed basis. You can use the funds to pay off your credit card balances. Like a home equity loan, your home is used as collateral. While home equity loans have fixed interest rates, HELOCs typically have an adjustable interest rate.

One of the big perks of a home equity line of credit is that you can draw from it more than once as needed. However, if you only plan to use it to pay off a known amount of credit card debt, a home equity loan might make more sense.

Rocket Mortgage doesn’t offer HELOCs currently.

Cash-out mortgage refinance

If you refinance your home loan ² you’ll replace your existing mortgage with a larger one and withdraw the difference in cash. You can use those funds to pay off your credit cards without adding a separate home equity loan payment to your budget. A refinance will typically get you a lower interest rate than a second mortgage, but the closing costs are higher because they’re calculated as a percentage of a larger loan amount.

Balance transfer credit card

A balance transfer credit card allows you to move your debt to a new credit card. In general, these cards offer a 0% introductory period, which can give you a chance to make significant headway on your payoff plan. Keep in mind that most cards charge a balance transfer fee of 3% – 5%.

Debt snowball method

The debt snowball method doesn’t involve any debt consolidation strategies. Instead, the focus is on paying off your smallest credit card balance with any money you have available in your budget. As you pay off your debts, you can redirect that minimum payment into your next credit card balance and eliminate your debt ahead of schedule.

FAQ

Let’s look at the answers to some frequently asked questions about debt consolidation.

Can you use a home equity loan to consolidate credit card debt?

Yes, you can use a home equity loan to consolidate credit card debt. These loans are highly flexible, and you can use the money you borrow for almost any purpose.

How do you qualify for a home equity loan?

To qualify for a home equity loan, you’ll need to have sufficient equity in your home and be able to show your lender that you have solid credit and stable finances. In general, you’ll need at least 15% – 20% equity in your home, and your borrowing limit will not let you drop below 20% equity.

What’s the best way to get credit card debt under control?

Debt consolidation is one option for getting credit card debt under control, letting you reduce the cost of your debt.  In the long term, the best way to make progress is to pay your balances down aggressively and adjust your spending habits so that you don’t wind up in credit card debt again. That may mean building an emergency fund to cover unexpected costs or following a budget to help you stop overspending.

The bottom line

If you’re a homeowner, a home equity loan can help you use the equity you’ve built to consolidate credit card debt at a lower rate and simplify repayment. Home equity loans have lower interest rates than credit card debt, which means you can save money. This loan option turns unsecured debt into secured debt, which means your home is on the line if you can’t repay your second mortgage.

Before using home equity to consolidate debt, make sure you’re confident in your ability to make your monthly loan payments. If you’re ready to apply for a home equity loan, you can apply for one with Rocket Mortgage.

¹ Home Equity Loan product requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 11/19/25 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Ameriprise products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher‑priced loans in the State of New York are subject to additional regulatory requirements. Additional restrictions apply. This is not a commitment to lend.

² Refinancing may increase finance charges over the life of the loan.