Credit card balances can be expensive to carry over time. Some homeowners consider a Home Equity Line of Credit (HELOC) as one way to consolidate those balances, alongside other options such as repayment plans, balance-transfer offers or unsecured loans.
A lower borrowing rate could reduce interest costs in some circumstances, but rates, fees, repayment terms and total costs vary. More importantly, consolidating credit card balances with a HELOC replaces unsecured debt with debt secured by the home. If required HELOC payments are not made, foreclosure and loss of the property are possible.
To compare illustrative payment scenarios, explore the Debt Consolidation Calculator — enter balances and assumed rates to explore possible differences in payments and interest. Results are estimates, not lender quotes or guaranteed savings.
Potential Cost Differences — and Their Limits
A HELOC may carry a lower interest rate than some credit cards, but that is not guaranteed for every borrower or offer. Compare the annual percentage rate, any opening or annual fees, how long repayment lasts and the total cost over time. Lower initial monthly payments do not necessarily mean lower overall borrowing costs.
During a HELOC draw period, some agreements permit interest-only payments while others require principal payments as well. After the draw period, required payments may increase as principal repayment begins, and variable interest rates can change. Our HELOC Payment Calculator illustrates possible draw-period and repayment-period payments using your assumptions.
The Hidden Danger: Shifting the Risk
A key distinction is that credit card debt is generally unsecured debt. Missed payments can lead to fees, credit damage, collections and legal action, but an ordinary unsecured credit card does not directly use your home as collateral.
A HELOC is secured debt, backed directly by your home. Using a HELOC to pay credit card balances puts the home behind that borrowing. If required payments are missed, the lender may pursue foreclosure, subject to the loan agreement and applicable law. This risk exists even when the borrowed funds were used to pay off previously unsecured debt.
Paying off card balances with another loan does not prevent new card debt. If credit card balances build up again, a homeowner could owe both the HELOC and new unsecured debt. Consider this possibility when comparing repayment options.
Factors to Review Before Consolidating
Questions worth examining before comparing a HELOC with other debt-repayment options include:
- Future card use. How might new credit card spending affect the total debt balance after consolidation?
- Principal repayment. What principal payments are required during the draw and repayment periods, and how could the payment amount change?
- Rate and fee changes. Many HELOCs have variable rates, and some have additional fees. Compare those terms with fixed-rate alternatives using our HELOC vs. Home Equity Loan comparison calculator to explore different hypothetical payment structures.
Questions to Consider
Before comparing offers, consider the total amount owed, borrowing fees, rate-change risk, repayment obligations and the consequences of missed payments. A lower advertised rate alone cannot establish whether consolidation will reduce total costs. The Consumer Financial Protection Bureau provides independent information about HELOCs and their risks. A qualified financial or housing professional can explain how particular terms may apply to an individual situation.