Home equity loan vs. HELOC: Which option is right for your credit card payoff plan?
Summary
Homeowners can use the value built up in their homes, called home equity, to pay off expensive credit card debt. Two main borrowing options are home equity loans, which have fixed payments, and home equity lines of credit (HELOCs), which work like credit cards with variable rates and flexible borrowing amounts.Key Facts
- Credit card interest rates are high, averaging over 21%, making balances hard to reduce.
- Many homeowners have increased their home equity due to rising home prices in recent years.
- A home equity loan gives a lump sum with a fixed rate and fixed monthly payments.
- This loan is good if you want payment certainty and your debt amount is stable.
- A HELOC works like a credit line, letting you borrow as needed with a variable interest rate.
- HELOCs offer more borrowing flexibility and are better if your debt repayment plan may change.
- Fixed rates from home equity loans protect against rising interest costs if rates go up in the future.
- Using home equity borrowing can help consolidate credit card debt potentially at a lower interest rate.
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