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Using a Home Equity Loan to Pay Off Credit Cards

Jun 12, 2008
The majority of Americans carry some sort of credit card debt. Unfortunately, many of us carry so much debt at such high interest rates that it becomes difficult to make a difference in the amount we owe, even when we send a payment to the credit card company each month. Falling behind just makes it worse, with late fees and finance charges added on to your next statement- and often a late payment will result in an increase in your interest rate. High interest rates quickly add up and result in our monthly credit card payments doing little or nothing to reduce the balance. It's a vicious cycle that can be difficult to get out of.

One effective solution for getting off the credit card rollercoaster if you are currently a homeowner, may be to obtain a home equity loan and use it to pay off your high interest credit card debt. Homeowners often take home equity loans to make home improvements, figuring that the improvements will increase the value of their home and therefore make the loan worth it, but why not take a home equity loan to eliminate high interest debt and make it easier to pay your monthly expenses?

The Benefits of Refinancing Credit Cards with a Home Equity Loan

There are a number of benefits of credit card refinancing, with the most obvious one being the decrease in interest rates you are paying. The other primary benefit is the fact that you aren't incurring more debt when you pay off your credit cards with a home equity loan - you're keeping the amount you owe the same and moving the debt to a more affordable repayment method. If you had previously been struggling to make several individual payments every month, using a home equity loan to pay off your credit cards will result in a consolidation of your debt, making it easier to pay.

Additional benefits of refinancing credit cards with home equity include:

eliminating variable interest rates and getting a fixed interest rate obtain a tax benefit with an interest rate tax write-off on home equity loan interest that could not be done with credit card interest consolidate a number of monthly payments into a single, often lower, payment easier record keeping, write and mail one check a month and make one transaction in the check register rather than multiple.

Disadvantages of Paying Off Credit Cards with Home Equity Loans

Like everything good in the world, there are also some disadvantages to using a home equity loan to pay off credit cards, that you'll want to consider, though. For example, once you pay off the credit cards, you suddenly have lots of room on them to charge new purchases! This can be extremely tempting, and if you're not disciplined, you could end up charging more debt and making your situation even worse (because now you have the home equity loan PLUS the additional high interest credit card debt!)

It's a good idea to either get rid of the credit cards by cutting them up, or by placing them in a fire safe box in your home so that you aren't tempted to pull them out of your wallet when you're out shopping. Refinancing the credit card debt with a home equity loan can give you the opportunity to live credit card-debt free. Most financial advisors do not recommend calling to physically cancel the accounts right away, because reducing the amount of "available credit" will often have a negative impact on your credit score.
About the Author
This article is courtesy of CreditorWeb.com, where you can compare business credit card offers and apply for credit cards online.
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