HELOC or Home Equity Loan: Which Is Better for Paying Off Costly Credit Card Debt?

With the cost of living climbing, many households have relied on credit cards simply to keep their budgets afloat.

As Austin Kilgore of the Achieve Center for Consumer Insights told the New York Post, most people carrying credit card debt are not reckless; they are often struggling to cover essential expenses.

At the same time, Cotality, a property data and analytics company, says the average borrower now has roughly $295,000 in home equity. For many Americans feeling squeezed by higher prices, that equity can be used to wipe out expensive credit card balances.

Some borrowers are already doing exactly that. In a joint 2026 study by Freedom Debt Relief and Money.com, nearly one-quarter of people with significant unsecured debt said they had borrowed against home equity in the past 12 months to consolidate what they owed.

Why credit card debt is considered “bad” debt

Credit card balances are expensive because their interest rates are among the highest of any common consumer debt.

LendingTree says the average APR on a new credit card is 23.79%, slightly above the prior month.

At that rate, a $5,000 balance would generate about $98.75 in interest each month. If you made only minimum payments, it would take about 200 months, or nearly 17 years, to eliminate the debt, assuming you never added new charges.

That is not just a worst-case example. Freedom Debt Relief and Money.com found that 28% of borrowers with sizable debt can afford only the minimum payment each month. The share rises to 34% for millennials and 36% for Gen Z. When interest is near 24%, minimum payments barely reduce the principal, while borrowers continue paying large financing costs.

Credit card debt is also labeled “bad” because the purchases are usually not assets that grow in value, such as a restaurant meal.

“Good debt” is different because it is tied to something that can hold or increase in value. A mortgage, for example, is taken out to buy a home, which has historically appreciated over time.

Using home equity to replace expensive unsecured debt can be a smart move when it lowers interest costs and turns revolving balances into a more structured loan. Because credit card rates are often far higher than home equity borrowing rates, this strategy can reduce the total interest paid over time. It can also create a clear repayment plan, as long as the borrower avoids running up new credit card balances.

How home equity loans and HELOCs work

Both home equity loans and home equity lines of credit, or HELOCs, let homeowners borrow against the value built up in their homes. The money can be used to pay off credit cards or finance home improvements and other large expenses.

A home equity loan works like a second mortgage. The borrower receives the full amount at once while keeping the original mortgage in place.

These loans usually have fixed rates, so monthly payments stay the same throughout the repayment period, which is often 10 to 15 years. That makes them easier to budget for, and borrowers do not have to worry about rising rates after they lock one in.

A HELOC also lets homeowners borrow against their equity, but the details can vary widely depending on the lender.

Some HELOCs act as revolving credit lines during a draw period, allowing borrowers to take money as needed and, in some cases, borrow again as they repay. These products may require interest-only payments for a time before principal repayment begins.

Other HELOCs provide funds upfront and follow a set repayment schedule from the start, making them closer to a traditional loan. Depending on the lender, the rate may be fixed or variable.

Because the structure can differ so much from one product to another, borrowers should read the terms carefully and understand how the money is distributed, how payments are calculated and how long repayment will take.

Pros and cons of using home equity to clear credit card debt

Using a home equity loan or HELOC to pay off credit card debt has clear advantages.

Depending on your credit score and loan terms, the interest on home equity borrowing can be much lower than a credit card rate. Bankrate reports that home equity loan rates range from 5.65% to 10.75%, with average rates between 8.12% and 8.25%.

Here is how a $5,000 balance can compare when paid with a home equity loan instead of making minimum credit card payments:

In that example, paying off the balance with a home equity loan saves $6,284.48 and about 10 years.

A HELOC can also be used to pay off a credit card, though the mechanics are different.

According to Kilgore, some HELOCs have variable rates, but others, including products offered by Achieve, offer fixed-rate HELOCs. That can give borrowers steadier monthly payments and a clearer repayment schedule, which may be especially useful when consolidating high-interest debt.

Both products can be used for debt consolidation, home renovations and other large expenses. The better choice depends on a borrower’s financial goals, preferred features and overall situation.

As Kilgore put it, many people use home equity products to consolidate higher-interest debt, while others use them to fund home projects or other major costs.

He added that consumers should compare interest rates, repayment terms and monthly payment requirements before choosing a product.

Here is a closer look at how the two options stack up.

HELOC vs. home equity loan: pros and cons

What to consider before using home equity to pay off credit cards

Using home equity to pay off high-interest credit cards can save both money and time, but it is not without risk.

Because credit card debt is unsecured, it may sometimes be negotiable in an emergency or dischargeable in bankruptcy without putting your home at risk. Bankruptcy protection is intended to help keep people from losing their home when finances become severe.

Home equity loans and HELOCs are different because they are secured by your house. If you cannot repay them, the lender may be able to foreclose.

This strategy only works if you already have a budget that addresses the underlying cash-flow problem.

Real financial progress starts with an honest look at income and expenses. A lasting debt payoff plan balances both so you can pay down debt, protect savings and build a sustainable lifestyle.

But moving credit card debt onto home equity also requires strict discipline. Without it, borrowers can fall into a double debt trap: they use a loan to pay off cards, then build up new card balances while also carrying the home equity payment.

Achieve offers services that can help consumers decide whether a home equity loan or HELOC is the right way to reduce debt payments and stay on track.

Frequently asked questions about using home equity to pay off debt

What is the difference between a home equity loan and a HELOC?

A home equity loan usually works as a second mortgage that gives you a lump sum upfront, with a fixed rate and set monthly payments over a defined term. A HELOC also allows borrowing against home equity, but the structure depends on the lender. Some are revolving lines of credit, while others provide funds upfront and follow a more traditional repayment plan. Rates may be fixed or variable.

Is it a good idea to use home equity to pay off credit card debt?

It can be a strong financial strategy if you have the discipline to avoid rebuilding debt. By turning high-interest unsecured credit card debt, averaging about 23.79%, into a lower-interest secured home equity product, averaging 8.12% to 8.25%, you can cut interest costs sharply. In one example, paying off a $5,000 balance with a home equity loan instead of making minimum credit card payments could save more than $6,200 and shorten the payoff period by nearly a decade.

What are the risks of using home equity to pay off credit cards?

The biggest risk is losing your home. Credit card debt is unsecured and may sometimes be handled through negotiation or bankruptcy without affecting your housing. Home equity loans and HELOCs are secured by property, so default can lead to foreclosure. There is also the danger of falling into the double debt trap by running up card balances again while taking on a new home equity payment.

How does HELOC repayment work?

Repayment varies by product and lender. Some HELOCs have a draw period followed by a repayment period, while others begin repayment immediately after funds are issued. Rates can also differ, with some products offering variable rates and others fixed rates. Before choosing one, borrowers should review how the funds are delivered, how payments are set and how long repayment will take.