Paying Off Your Credit Card Balances With Your Home Equity

If you owe a lot of money on your credit card, you may be thinking of using your home equity to pay off your loans. Is this a good idea? Sometimes yes. Sometimes No. Here are the 3 primary benefits of doing so:

1. Lower interest rates.

The interest rate on your home equity account will be three, four, or more percent cheaper than the interest rate on your credit card. This lets you keep more of your money in your pocket.

2. Pay off loan faster.

Since you have a lower rate of interest,, you will be able to liquidate your debt a lot quicker. For instance, let’s say that the annual interest rate on your credit card is twenty percent and you own $5,000. If you manage to pay off the balance in 12 months, you’ll have paid $5,558 total. If, however, you transfer your debt to your 5% home equity loan, you can pay this debt off in just 11 months.

3. You pay less money overall

Using the same scenario as above, with the credit card interest rate, you’ll pay $5,558. but with the lower home equity rate, you’ll only pay $5,138, nearly 9% less. And the bigger the amount of your credit card debt, the more you benefit by transferring your balance.

Should you always transfer your credit card debt to your home equity account? There’s no hard and fast rule. The important thing is to simply take stock of all the options you have when paying off a debt.

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