How to Use a HELOC or Home Equity Loan to Consolidate Credit Card Debt

• A home equity loan or HELOC may help you consolidate high-interest credit card debt into one monthly payment.
• Depending on your current rates and loan terms, debt consolidation could lower your interest costs and make payments easier to manage.
• A Northwest banker can help you compare your options and coordinate the payoff process.

If you own a home and are having trouble paying off credit card debt, there may be an easier way to lower your monthly payments than you realize. A home equity line of credit (HELOC) or home equity loan can help you pay less interest, make repayment simpler and possibly get out of debt sooner.

“If you have five, ten or more credit cards, it can be difficult to determine which ones to pay, and how to start paying that debt down,” says Ron Boltey, Director of Mortgage Operations at Northwest Bank.

With a HELOC or home equity loan, you can pay off high-interest credit card balances and combine your debt into one place. Depending on your current rates and loan terms, you may also lower your interest rate or monthly payment.

Pro tip: Try our mobile banking tools to easily keep track of your monthly spending and savings.

What is debt consolidation?

Consolidating your debt means combining balances from multiple lenders or creditors into just one. A HELOC or home equity loan can help you do this. First, you choose the option that best fits your needs. Then, you use the funds from your new loan or line of credit to pay off your existing credit card balances. At Northwest, your banker helps guide you through the process, so you don't have to manage each payoff on your own.

With a home equity loan, payments typically continue for the term of the loan, often 15 years. With a HELOC, you make payments based on the balance you borrow and the terms of your credit line.

Pro tip: Discover a variety of savings tools to help you reach your financial goals.

When does debt consolidation make sense?

There are several reasons to use a HELOC or home equity loan to pay off your credit card debt. For example, if the rate on a HELOC or home equity loan is lower than the rates on your credit cards, consolidating could reduce your monthly payment. Keep in mind that a longer loan term may affect how much interest you pay over time.

“We’ve seen monthly credit card payments of $1,000 convert to $500 or $400,” Boltey said. “The gap between what you were paying and what you pay after consolidation can be huge, depending on how much debt you have.”

Another benefit is making your monthly payments easier to manage. Juggling several creditors with different payment due dates can be overwhelming. When you combine everything into one payment, it's easier to keep track of your debt, know when it’s due and see your progress toward paying it down.

While debt consolidation can make sense in some situations, Boltey notes that if you have a credit card with zero percent interest, keeping your debt on that card and paying it down as fast as possible makes sense.    

HELOC vs. home equity loan

Both home equity loans and home equity lines of credit can help you combine your debt at a lower interest rate. However, there are some key differences between the two options.

With a HELOC, you can pay off your current debt and keep the credit line open in case you need money for home projects now or in the future.

Boltey emphasizes that a higher credit limit simply offers borrowers more financial breathing room. “You only pay interest on the credit you use,” he says. “That flexibility is really helpful.” However, keep in mind that HELOCs typically have adjustable rates, which means the rate and monthly payments may change over time. Compare the HELOC's current rate and terms with those of your credit cards before deciding.

Home equity loans, on the other hand, give you a set amount of money at a fixed interest rate. If you want to pay off debt, don’t have other home projects planned and prefer a steady interest rate, then a loan might be the best choice.

Pro tip: Questions about home loans and HELOCs? Call our mortgage hotline at 1-888-884-4626.

Starting fresh

Boltey says many people come to Northwest Bank for a HELOC and then find out they can use it to pay down their debt. “If you’re getting a HELOC anyway, you might as well take advantage of it to consolidate your debt,” he says. “A lot of borrowers feel like it gives them a fresh start.”

For Dominica Schwanke, Northwest Bank’s brand and content marketing manager, learning she could use a home equity loan to pay off two credit cards was a pleasant surprise. “It’s saving me years of payments that I would have had to make,” she says. “Now I have this one loan, and there are times of the year when I can pay extra to pay it down that much faster.”

Consolidating your debt can also help your credit score. Credit bureaus often see home loans and HELOCs as “better” debt than credit cards, Boltey says. “It usually has a positive impact on credit scores instead of a negative one,” he adds.

How Northwest Bank helps

We're here to help you as you start consolidating your debt. Our bankers will help you decide if a HELOC or home loan is right for you and will handle the debt consolidation process. If consolidation is right for your situation, you can bring multiple credit card balances into one monthly payment and may be able to lower your interest rate.

“It was very easy,” Schwanke says. “They took care of all of it for me. It was a very smooth process.”

Interested in using a home loan or HELOC to consolidate your debt? Fill out a home equity loan or HELOC application online today to speak with a member of our team and see how we can help.