The recent spike in the cost of living has forced many people to resort to credit cards to keep their family 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 information and analytics provider, recently released a report showing that “the average borrower now has about $295,000 in accumulated home equity” at the end of 2025. Though many Americans are feeling squeezed by a dramatic rise in prices over the last six months, they are sitting on a lot of home equity that can be used to zero out their bad, expensive credit card debt.
Credit card debt is expensive relative to other kinds of debt because the average interest rate on a credit card balance has reached an all-time high.
According to Lendingtree, the average APR offered with a new credit card is currently 23.79%, up from 23.75% in April.
That means if you have $5,000 in debt on a card at that rate, you will owe $98.75 in interest alone every month. Making the minimum payments, it will take you 200 months — almost 17 years — to pay off that debt, assuming you don’t charge anything else to that credit card in the meantime.
Credit card debt is also “bad debt” because what you buy with it usually doesn’t appreciate in value (for example, a dinner out).
Good debt, on the other hand, leaves you with a valuable and hopefully appreciating asset. For example, your mortgage is debt that you take on to acquire an asset that has historically gained value: your house.
Turning bad debt into good debt can be a strategic financial move that involves leveraging your home’s equity to consolidate high-interest, unsecured credit card debt into a lower-interest, secured loan.
Because credit card interest rates are often double or triple the rates on home equity products, this conversion can drastically reduce the total interest you pay over the life of your debt. By replacing a high-cost revolving balance with a fixed, amortizing payment, you not only lower your monthly interest burden but also create a structured, predictable path to total debt freedom, provided you have the self-discipline to avoid running up new credit card balances.
Home equity loans and lines of credit (HELOCs) both use the value of the equity in your home to finance a loan you can use to pay off high-interest credit cards and make improvements to your house.
A home equity loan functions as a second mortgage on your home, allowing homeowners to borrow against the accumulated equity while keeping their primary mortgage intact. You get the entire sum in a single, one-time payment.
Home equity loans are predictable due to a fixed interest rate that never changes. You can count on fixed monthly payments over a predetermined period, usually 10 to 15 years. Because the costs are fixed, budgeting is straightforward, and once homeowners have locked in their rate, they don’t have to worry about rates rising.
A HELOC (home equity line of credit) also allows homeowners to borrow against the equity in their home, but product features can vary significantly by provider.
Some HELOCs function as revolving lines of credit that allow borrowers to access funds as needed during a draw period. These products may allow borrowers to reaccess available credit as they repay the balance and may require interest-only payments for a period of time before principal repayment begins.
Other HELOCs provide funds upfront and follow a structured repayment schedule from the beginning, making them more similar to a traditional loan. Depending on the product, borrowers may receive a fixed interest rate with predictable monthly payments or a variable rate that can change over time.
Because funding methods, repayment schedules and interest rate structures vary, borrowers should carefully review the terms of any HELOC to understand how funds are disbursed, how monthly payments are calculated and how long repayment will take.
Using a home equity loan or HELOC to pay off expensive credit card debt has its advantages.
The interest on a home equity loan may be much less expensive than the interest on a credit card, depending on your credit score and the terms of your loan. Reporting from Bankrate shows that home equity loan rates range from 5.65% to 10.75%, and the average rate is between 8.12% and 8.25%.
This is what it looks like to pay off a $5,000 balance with a credit card versus paying off that same balance making minimum payments:
| Debt Payoff Strategy | Interest Rate | Monthly Payment | Time to Pay Off | Total Interest Paid | Total Amount Paid |
|---|---|---|---|---|---|
| Credit Card (Minimums) | 23.79% | Starts at $149 (decreases monthly) | ~19.5 Years (234 months) | $8,804.09 | $13,804.09 |
| Home Equity Loan | 8.75% | Fixed at $62.66 | 10 Years (120 months) | $2,519.61 | $7,519.61 |
| Total Savings | Saved 15.04% | Lower fixed burden | Saved 9.5 Years | Saved $6,284.48 | Saved $6,284.48 |
In this example, you save $6,284.48 and 10 years by paying off your high-interest credit cards with a home equity loan.
Using a HELOC to pay off a credit card also has advantages, though the mechanics are 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 improvement projects and other major expenses. The right option depends on a borrower’s financial goals, preferred loan features and overall financial situation.
“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 comparison.
| Financing Option | Pros | Cons |
|---|---|---|
| Home Equity Loan (Lump Sum) | • Fixed Rate: Payments never change, protecting you from interest rate hikes. • Structured Payoff: Clear end date forces you to eliminate the debt completely. • Lower Interest: Rates are significantly lower than standard credit cards. | • Inflexible Amount: You pay interest on the whole amount, even if you overborrow. • Higher Initial Payments: Principal repayment starts immediately on day one. • Risk of Re-building Debt: Accessing cash doesn’t stop temptation to use cards again. |
| HELOC (Line of Credit) | • Pay as You Go: Only borrow and pay interest on the exact debt amount needed. • Lower Initial Costs: Draw period often requires low, interest-only payments. • Reusable Fund: Credit line replenishes as you pay it down for future needs. | • Variable Rates: Payments can rise unexpectedly if market interest rates increase. • Payment Shock: Monthly bills jump sharply when the repayment period begins. • Overspending Risk: Having an open line of credit can lead to deeper debt cycles. |
Using the equity in your home to pay off expensive, high-interest credit cards can save you money and time. But it’s important to understand the risks of this debt reduction strategy.
Because credit card debt is unsecured, it may be possible in emergency situations to negotiate with your creditors or discharge your debt in bankruptcy without losing your house. In fact, bankruptcy protection is designed to keep you from losing your house if your financial situation becomes dire.
Home equity loans and HELOCs are secured by your house, 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 pay off high-interest credit cards is only a viable option if you have created a budget to deal with your cash flow problems.
True financial freedom begins the moment you confront your numbers with complete honesty. A solid, lasting debt payoff plan aligns your income and expenses into a balanced budget. This structure allows you to systematically pay off your debts, protect your savings and design a sustainable lifestyle.
However, swapping high-interest credit card debt for home equity requires absolute lifestyle discipline. Without it, you will likely fall into the devastating double debt trap. You take out a loan to pay off your credit cards, but then you slowly refill them with new expenses. Suddenly, you face the exact same credit card debt, layered right on top of a heavy new home equity payment.
Services offered by Achieve can help you decide if a home equity loan or HELOC is the right move to help you reduce your debt payments and stay in the black.
The main difference lies in how the products are structured and repaid. A home equity loan typically functions as a second mortgage, providing a lump sum upfront with a fixed interest rate and predictable monthly payments over a set repayment term. A HELOC (Home Equity Line of Credit) also allows homeowners to borrow against their home equity, but features can vary by provider. Some HELOCs function as revolving lines of credit that allow borrowers to access funds as needed, while others provide funds upfront and follow a structured repayment schedule. Interest rates may be fixed or variable depending on the product.
It can be a highly strategic financial move if you have absolute lifestyle discipline. By converting 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 reduce your monthly interest burden. For example, paying off a $5,000 balance with a home equity loan instead of making minimum credit card payments could save you over $6,200 and cut your payoff time by nearly a decade.
It can be a highly strategic financial move if you have absolute lifestyle discipline. By converting 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 reduce your monthly interest burden. For example, paying off a $5,000 balance with a home equity loan instead of making minimum credit card payments could save you over $6,200 and cut your payoff time by nearly a decade.
The most severe risk is the potential loss of your home. Credit card debt is unsecured, meaning it can sometimes be negotiated or discharged in bankruptcy without affecting your housing. Home equity loans and HELOCs are secured by your property; if you default, the bank can foreclose. Additionally, borrowers face the double debt trap: using equity to clear credit card balances, only to rack up new credit card debt while simultaneously carrying a heavy new home equity payment.
HELOC repayment structures vary by product and provider. Some HELOCs have a draw period followed by a repayment period, while others may provide funds upfront and follow a structured repayment schedule from the beginning. Interest rates can also vary, with some products featuring variable rates and others offering fixed rates. Before choosing a HELOC, borrowers should carefully review how funds are disbursed, how monthly payments are calculated and how long repayment will take.
Brooklyn-based financial journalist Will Kenton has over a decade of experience covering the intersection of money, economics and culture. Specializing in investing, personal finance and retirement planning, his work has appeared in Investopedia, AP News, Business Insider and TIME Stamped. While at Investopedia, Will was the creative force behind the Anxiety Index, a proprietary tool used to gauge investor sentiment. His expertise is rooted in behavioral economics — a field he explored as associate editor of the New School Economics Review — and he aims to help readers navigate the “predictable irrationality” that influences financial decisions. Will holds a BA from Ohio University, an MA in economics from The New School and a Ph.D. in English literature from NYU. Beyond his financial career, he is also an award-winning playwright featured in the Red Bull Theater’s annual festival.
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