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The current spike in the price of dwelling has pressured many people to resort to credit playing cards to keep their household budgets from bursting.
“The majority of people struggling with credit card debt aren’t doing so because they’re irresponsible,” Austin Kilgore, with the Achieve Center for Consumer Insights, tells the New York Post. “They are struggling to deal with essential expenses.”
On the other hand, Cotality, a property data and analytics supplier, lately launched a report exhibiting that “the average borrower now has about $295,000 in accumulated home equity” at the finish of 2025. Though many Americans are feeling squeezed by a dramatic rise in costs over the last six months, they are sitting on a lot of home equity that can be used to zero out their unhealthy, costly credit card debt.
Wooden blocks labeled “Good Debt” and “Bad Debt” are balanced on a pink string against a blurred inexperienced background in a conceptual image. SaLLy Studio AI – stock.adobe.com
Many are already tapping into that reserve. According to a joint 2026 research by Freedom Debt Relief and Money.com, almost one-quarter (24%) of debtors carrying substantial unsecured debt have borrowed against home equity in the previous 12 months to consolidate their balances.
The distinction between “good” debt and “bad” debt
Credit card debt is costly relative to other varieties of debt because the average rate of interest on a credit card stability has reached an all-time high.
According to Lendingtree, the average APR provided with a new credit card is at present 23.79%, up from 23.75% in April.
That means if you have $5,000 in debt on a card at that charge, you will owe $98.75 in curiosity alone every month. Making the minimal funds, it will take you 200 months — nearly 17 years — to repay that debt, assuming you don’t charge anything else to that credit card in the meantime.
This calculation isn’t just a hypothetical worst-case situation, it’s an on a regular basis actuality. The Freedom Debt Relief/Money.com survey discovered that 28% of debtors with important debt can only afford to make the minimal required funds each month—a determine that spikes to 34% for millennials and 36% for Gen Z. When rates of interest hover close to 24%, minimal funds barely contact the principal, leaving debtors paying hundreds in financing prices without gaining ground.
Credit card debt is also “bad debt” because what you buy with it normally doesn’t admire in worth (for instance, a dinner out).
Good debt, on the other hand, leaves you with a helpful and hopefully appreciating asset. For instance, your mortgage is debt that you take on to purchase an asset that has traditionally gained worth: your home.
Turning unhealthy debt into good debt can be a strategic financial transfer that entails leveraging your home’s equity to consolidate high-interest, unsecured credit card debt into a lower-interest, secured loan.
Because credit card rates of interest are typically double or triple the charges on home equity merchandise, this conversion can drastically scale back the complete curiosity you pay over the life of your debt. By changing a high-cost revolving stability with a fixed, amortizing fee, you not only decrease your month-to-month curiosity burden but also create a structured, predictable path to complete debt freedom, supplied you have the self-discipline to keep away from working up new credit card balances.
How home equity loans and home equity traces of credit (HELOCs) work
Home equity loans and traces of credit (HELOCs) both use the worth of the equity in your home to finance a loan you can use to repay high-interest credit playing cards and make enhancements to your home.
A home equity loan features as a second mortgage on your home, permitting owners to borrow against the accrued equity while maintaining their main mortgage intact. You get the complete sum in a single, one-time fee.
Home equity loans are predictable due to a fixed rate of interest that never modifications. You can depend on fixed month-to-month funds over a predetermined period, normally 10 to 15 years. Because the prices are fixed, budgeting is simple, and once owners have locked in their charge, they don’t have to fear about charges rising.
A HELOC (home equity line of credit) also permits owners to borrow against the equity in their home, but product options can range considerably by supplier.
Some HELOCs perform as revolving traces of credit that enable debtors to access funds as needed during a draw period. These merchandise may enable debtors to reaccess obtainable credit as they repay the stability and may require interest-only funds for a period of time before principal reimbursement begins.
Other HELOCs present funds upfront and comply with a structured reimbursement schedule from the starting, making them more related to a conventional loan. Depending on the product, debtors may obtain a fixed rate of interest with predictable month-to-month funds or a variable charge that can change over time.
Because funding strategies, reimbursement schedules and rate of interest constructions range, debtors should fastidiously review the phrases of any HELOC to perceive how funds are disbursed, how month-to-month funds are calculated and how long reimbursement will take.
Home equity line of credit (HELOC) paperwork are pictured. Vitalii Vodolazskyi – stock.adobe.com
The execs and cons of utilizing a home equity loan or HELOC to repay credit card debt
Using a home equity loan or HELOC to repay costly credit card debt has its benefits.
The curiosity on a home equity loan may be much less costly than the curiosity on a credit card, relying on your credit rating and the phrases of your loan. Reporting from Bankrate reveals that home equity loan charges vary from 5.65% to 10.75%, and the average charge is between 8.12% and 8.25%.
This is what it appears to be like like to repay a $5,000 stability with a credit card versus paying off that same stability making minimal funds:
Debt Payoff TechniqueInterest RateMonthly PaymentTime to Pay OffComplete Interest PaidTotal Amount PaidCredit Card (Minimums)23.79%Starts at $149 (decreases month-to-month)~19.5 Years (234 months)$8,804.09$13,804.09Home Equity Loan8.75%Fixed at $62.6610 Years (120 months)$2,519.61$7,519.61Total SavingsSaved 15.04%Lower fixed burdenSaved 9.5 YearsSaved $6,284.48Saved $6,284.48
In this instance, you save $6,284.48 and 10 years by paying off your high-interest credit playing cards with a home equity loan.
Using a HELOC to repay a credit card also has benefits, though the mechanics are totally different.
According to Kilgore, “While many HELOCs have variable interest rates, some companies, including Achieve, provide fixed-rate HELOCs. For borrowers, that can mean more predictable monthly payments and a clear repayment timeline, which may be especially valuable when consolidating high-interest debt.”
Both home equity loans and HELOCs can be used for debt consolidation, home enchancment initiatives and other main bills. The proper option relies upon on a borrower’s financial objectives, most well-liked loan options and total financial scenario.
“Many people use home equity products to consolidate higher-interest debt, while others may use them to finance home improvements or other significant expenses,” according to Kilgore.
“Before choosing a product, consumers should compare interest rates, repayment terms and monthly payment requirements to determine which option best aligns with their needs.”
Take a look at this HELOC vs. home equity loan comparability.
HELOC vs. home equity loan execs and cons
Financing OptionProsConsHome Equity Loan (Lump Sum)• Fixed Rate: Payments never change, defending you from rate of interest hikes.
• Structured Payoff: Clear finish date forces you to eradicate the debt fully.
• Lower Interest: Rates are considerably decrease than normal credit playing cards.• Inflexible Amount: You pay curiosity on the entire quantity, even if you overborrow.
• Higher Initial Payments: Principal reimbursement begins immediately on day one.
• Risk of Re-building Debt: Accessing money doesn’t stop temptation to use playing cards again.HELOC (Line of Credit)• Pay as You Go: Only borrow and pay curiosity on the precise debt quantity needed.
• Lower Initial Costs: Draw period typically requires low, interest-only funds.
• Reusable Fund: Credit line replenishes as you pay it down for future wants.• Variable Rates: Payments can rise unexpectedly if market rates of interest increase.
• Payment Shock: Monthly payments leap sharply when the reimbursement period begins.
• Overspending Risk: Having an open line of credit can lead to deeper debt cycles.
What to know before utilizing a home equity loan or HELOC to repay credit card debt
Using the equity in your home to repay costly, high-interest credit playing cards can save you money and time. But it’s important to perceive the dangers of this debt discount strategy.
Because credit card debt is unsecured, it may be attainable in emergency conditions to negotiate with your collectors or discharge your debt in chapter without shedding your home. In truth, chapter safety is designed to keep you from shedding your home if your financial scenario becomes dire.
Home equity loans and HELOCs are secured by your home, however, which means if you can’t afford to pay them back, the lender could foreclose on your home. Using your home’s equity to repay high-interest credit playing cards is only a viable option if you have created a funds to deal with your money circulation issues.
True financial freedom begins the second you confront your numbers with full honesty. A strong, lasting debt payoff plan aligns your income and bills into a balanced funds. This construction permits you to systematically repay your money owed, defend your financial savings and design a sustainable life-style.
However, swapping high-interest credit card debt for home equity requires absolute life-style self-discipline. Without it, you will doubtless fall into the devastating double debt entice. You take out a loan to repay your credit playing cards, but then you slowly refill them with new bills. Suddenly, you face the precise same credit card debt, layered proper on prime of a heavy new home equity fee.
Services provided by Achieve can help you resolve if a home equity loan or HELOC is the proper transfer to help you scale back your debt funds and keep in the black.
Stacks of $100 payments are pictured with a small home. Andy Dean – stock.adobe.com
Frequently Asked Questions: Using Home Equity to Pay Off Debt
What is the distinction between a home equity loan and a HELOC?
The primary distinction lies in how the merchandise are structured and repaid. A home equity loan usually features as a second mortgage, offering a lump sum upfront with a fixed rate of interest and predictable month-to-month funds over a set reimbursement time period. A HELOC (Home Equity Line of Credit) also permits owners to borrow against their home equity, but options can range by supplier. Some HELOCs perform as revolving traces of credit that enable debtors to access funds as needed, while others present funds upfront and comply with a structured reimbursement schedule. Interest charges may be fixed or variable relying on the product.
Is it a good concept to use home equity to repay credit card debt?
It can be a extremely strategic financial transfer if you have absolute life-style self-discipline. By changing high-interest, unsecured credit card debt (averaging around 23.79%) into a lower-interest, secured home equity product (averaging 8.12% to 8.25%), you can drastically scale back your month-to-month curiosity burden. For instance, paying off a $5,000 stability with a home equity loan instead of making minimal credit card funds could save you over $6,200 and cut your payoff time by almost a decade.
Is it a good concept to use home equity to repay credit card debt?
It can be a extremely strategic financial transfer if you have absolute life-style self-discipline. By changing high-interest, unsecured credit card debt (averaging around 23.79%) into a lower-interest, secured home equity product (averaging 8.12% to 8.25%), you can drastically scale back your month-to-month curiosity burden. For instance, paying off a $5,000 stability with a home equity loan instead of making minimal credit card funds could save you over $6,200 and cut your payoff time by almost a decade.
What are the dangers of utilizing home equity to repay credit playing cards?
The most extreme risk is the potential loss of your home. Credit card debt is unsecured, which means it can sometimes be negotiated or discharged in chapter without affecting your housing. Home equity loans and HELOCs are secured by your property; if you default, the bank can foreclose. Additionally, debtors face the double debt entice: utilizing equity to clear credit card balances, only to rack up new credit card debt while concurrently carrying a heavy new home equity fee.
How does the reimbursement course of for a HELOC work?
HELOC reimbursement constructions range by product and supplier. Some HELOCs have a draw period adopted by a reimbursement period, while others may present funds upfront and comply with a structured reimbursement schedule from the starting. Interest charges can also range, with some merchandise that includes variable charges and others offering fixed charges. Before selecting a HELOC, debtors should fastidiously review how funds are disbursed, how month-to-month funds are calculated and how long reimbursement will take.
This article was written by Brooklyn-based financial journalist and Commerce Editor for the New York Post Will Kenton. Specializing in investing, personal finance and retirement planning, Will’s experience is rooted in behavioral economics — a area he explored as affiliate editor of the New School Economics Review. Will goals to help readers navigate the “predictable irrationality” that influences financial choices, offering sensible real-world options to pupil loan debt, investments, mortgages and more. Before becoming a member of The Post in 2026, Will coated the intersection of money, economics and tradition for Investopedia, AP News, Business Insider and TIME Stamped.
