Why you should use a HELOC to pay down credit card debt now

A HELOC offers credit card users an affordable way to pay down their high-rate card debt now. Getty Images/iStockphoto

Your home equity may be a natural option to fund a variety of needs. 

Need to pay college education costs? A home equity loan or home equity line of credit (HELOC) can help. Want to buy a new car or finance major home improvements or projects? Your home equity can suffice there, too, and if you use it that way you may qualify for a tax deduction, too.

But what about paying down your existing debt, specifically credit card debt? While leveraging your home's equity can be tricky and it isn't risk-free, there is a compelling case to be made for using it to pay down high-rate credit card debt now. And there's an even stronger case for doing so with a HELOC. 

With the average credit card rate hovering near a record high, delinquencies problematic and the reality of compound interest to contend with, a wide array of borrowers will need to take action now. Below, we'll break down three big reasons why a HELOC could be the way to do so.

Start by seeing how much home equity you could borrow with a HELOC here.

Why you should use a HELOC to pay down credit card debt now

Not sure if a HELOC is the right tool to help you dig out of your credit card debt now? Here are three reasons why it could be:

Interest rates are three times lower than credit cards currently

Arguably, the strongest reason for using a HELOC to pay off your credit card balance now comes down to the interest rate disparity between the two. The average HELOC rate is just 7.84% currently. The average credit card rate? That's around 22%. Put another way: A HELOC is more than three times cheaper than a credit card is currently, making the former an obviously more affordable way to pay off the latter. 

And, if you shop around for HELOCs beyond just your current mortgage lender, you may be able to find a HELOC rate that's even lower. That puts money directly back into your savings account that otherwise may have been squandered paying off credit card debt interest.

See how low your current HELOC rate offers are here.

Rate cuts won't have an equal impact on both products

There's understandable hope that rate cuts courtesy of the Federal Reserve can offer some relief for credit card users. But that relief is likely to come gradually and in minor increments, if it does at all. It's important to remember that credit card rates are still near record highs despite the central bank cutting rates four times over the past year, approximately. HELOC rates, meantime, have dropped more than two full percentage points since that rate-cut campaign began in September 2024. Rate cuts have been proven to have an unequal impact on both products, and that's unlikely to change anytime soon.

You'll have the flexibility to adjust your pay-off approach

With a home equity loan, borrowers will be expected to make full repayments on the lump sum borrowed. With a HELOC, however, they'll only have to pay for the amount utilized – not the full line of credit they've been approved for. And even that won't be mandated for multiple years, as many lenders will expect interest-only payments to be made on the HELOC during the initial draw period. 

This type of flexibility is always a plus when borrowing equity, but it can be even more advantageous when using the HELOC to pay down credit card debt, as your strategy may shift depending on credit card rates, balances, emergency needs and other factors. A HELOC can be a workable solution.

The bottom line

Your home equity borrowing approach should always be done judiciously, especially if you're attempting to use it to pay down high-rate credit card debt. Right now, however, a HELOC offers a smart and effective way to do just that. With interest rates three times lower than credit cards, approximately, the reality that pending rate cuts will make a HELOC more affordable in a way that won't be repeated with credit cards and flexibility that other borrowing options don't offer, this could be the preferred way to pay down your credit card debt and regain your financial security now. Just be sure to calculate repayment costs along a variety of rate scenarios, as HELOCs have variable rates that can change based on market conditions.

Edited by Angelica Leicht