The Underutilized Tool To Tackle Record Breaking Credit Card Debt

While data from the Bureau of Labor and Statistics (BLS) shows the rate of inflation starting to decrease, Americans are still finding themselves grappling with the rising cost of living. And even though prices aren’t increasing as quickly as they were, credit card debt has surged to a record $1.08 trillion in Q3 of 2023 according to the New York Fed.

With the increases in interest rates throughout 2023, people are paying more in interest on this debt. As of this writing, they’re paying 30% more. Observing the Federal Reserve’s quarterly consumer credit reports as well as multiple weekly credit card database reports, average credt card APRs (annual percentage rates) for new credit card offers range between 21%  – 27% and sometimes higher. In 2022, the average APR was 16.27%.

With the holiday season – and holiday spending – in full effect, the likelihood of accumulating even more debt from holiday related credit card usage for repayment by the new year is foreseeable for many. Some homeowners that are credit card holders may not have considered the possibility of tapping into their home’s equity to reduce the burden of high credit card rates. Obtaining a home equity loan can be a strategic and successful financial move depending on your situation.

A home equity loan lets you tap into the equity you’ve built in your home through your initial down payment, the principal portion of your monthly payments and an increase in property value. A home equity loan is a second mortgage because it is a separate loan payment that will be made in addition to your existing primary mortgage payment. The loan provides borrowers with a large, lump-sum payment that they pay back in monthly installments with a fixed-rate over a predetermined period.

In a higher interest rate environment like we are currently experiencing, a home equity loan can be a helpful tool for homeowners. Unlike a cash-out refinance a home equity loan allows homeowners to keep the rate they currently have on their primary mortgage, while tapping into their home equity through a second lien. Taking cash out this way allows homeowners to consolidate high existing debt, like credit card debt, at a much lower rate than a credit card’s APR. Home equity loan interest rates are typically under 10%, which is comparably much lower than the average 21% high interest rates Americans are seeing today for credit cards.

If you’re a homeowner and looking to access a minimum of $45,000 of your equity, a home equity loan can be a great option to help you get your finances to a more manageable place. To get a home equity loan, you’ll need to qualify.

One of the most important steps in qualifying is understanding your home value, which helps determine how much equity you have. An appraisal will be conducted once you apply to determine the actual home value.  With the Rocket Homes^SM Property Report, you can get a free home value estimate. Depending on your credit score, and other factors Rocket Mortgage® will allow you to borrow up to 90% of the equity in your home, so it’s important to check your loan-to-value ratio as well. You’ll need at least 20% of equity in your home in order to qualify.

You can talk to one of our Home Loan Experts to review your qualifying factors and help determine if a home equity loan is right for you.

Spending money with a credit card can be easy, but manually keeping track of your spending and budget can be hard. Another helpful tool for both homeowners and non-homeowners to track their credit card spending is the Rocket Money^SM App. With this personal finance app, you can easily track your spending habits, create a budget, automate payments, and set spending and payment alerts.

In a time of escalating credit card debt and rising APRs, consolidating credit card debt into a home equity loan can be a smart and efficient strategy for homeowners with debt. With lower interest rates on home equity loans than current credit card interest rates, this underutilized tool can help homeowners regain control of high credit card balances and improve their financial stability. Looking to find out more about getting a home equity loan today? Apply online now with Rocket Mortgage. You can also give us a call at (833) 326-6018.