The short version
The homeowner paid off $45,000 of credit card debt at an average 24% rate with a HELOC at 9%, and kept paying the same $1,350 a month. At that payment the debt is paid off an estimated 17 months sooner, with an estimated $22,921 less in interest before fees. The trade-off is that the debt is now secured by the home and the HELOC rate is variable.
The situation
The homeowner had $45,000 in credit card debt at an average interest rate of 24%. Their monthly payments totaled about $1,350, and most of that was going to interest.
What they did
They paid off the cards with a HELOC at 9% and kept paying the same $1,350 a month toward the HELOC.
| Keeping the credit cards | Consolidating with a HELOC | |
|---|---|---|
| Starting balance | $45,000 | $45,000 |
| Interest rate | 24% | 9% |
| Monthly payment | $1,350 | $1,350 |
| Estimated payoff time | 56 months | 39 months |
| Estimated total interest | $29,899 | $6,978 |
At that payment, the debt is paid off an estimated 17 months sooner, with an estimated $22,921 less in interest before fees. The credit card column shows what the same $1,350 a month would have done had the balances stayed on the cards.
Payoff time and total interest are estimates. They are calculated from the balance, rates and payment shown, with the rate held constant and no new borrowing. 9% was this customer’s rate. Your rate depends on credit, equity and the full file, and HELOC rates are variable.
What made it work
They stopped adding credit card debt and kept the payment at $1,350. The lower rate sent more of every payment to principal. The consolidation did not solve the problem; the repayment plan did.
To run your own numbers, use the HELOC calculator, or compare the two side by side in HELOC vs. credit card.
The risk
A HELOC is secured by the home, and credit cards are not. Missed payments can put the house at risk. A HELOC rate is variable, so the rate and the payoff time can change. Running the cards back up after consolidating leaves a homeowner with both debts.
FAQ
Is it a good idea to use a HELOC to pay off credit cards?
It can reduce the interest you pay when the HELOC rate is lower than the card rates, you keep the payment high, and you stop adding card debt. The trade-off is that the debt becomes secured by your home and the HELOC rate is variable.
Does consolidating with a HELOC lower the monthly payment?
It often can, because the required HELOC payment is usually lower than the combined card minimums. Paying only the lower amount stretches the debt out. In this example the homeowner kept paying the original amount, which is what shortened the payoff.
What happens if you run the credit cards back up?
You would owe the HELOC and the new card balances at the same time, with the HELOC secured by your home. A consolidation only helps if the card balances stay paid off.
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