How to pay off credit cards with a HELOC
Three cards, $20,000, and $545 a month in minimums. Here's what changes when the balance moves to a HELOC, and the habits that decide whether it works.
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How much can you save paying off credit cards with a HELOC?
Moving $20,000 of credit card debt, with $545 a month in minimums, to a HELOC at 7.75% APR on a 5-year payoff cuts the payment to $403 a month, finishes two years sooner and saves about $16,800 in interest. The catch: the cards must stay at zero.
On this page
The example
| Card | Balance | APR | Payment | Paid off in | Interest |
|---|---|---|---|---|---|
| Card A | $9,200 | 26.2% | $240 | 7 yr | $10,953 |
| Card B | $6,800 | 23.9% | $175 | 6 yr 4 mo | $6,394 |
| Card C | $4,000 | 29.9% | $130 | 5 yr | $3,687 |
| Total | $20,000 | $545 | 7 yr | $21,035 |
Moved to a HELOC at 7.75% APR:
| HELOC payoff plan | Monthly | Interest | Saved vs. cards |
|---|---|---|---|
| 5 years | $403 | $4,188 | $16,847 |
| 7 years | $309 | $5,976 | $15,059 |
Assumes a fixed payment and that the rate holds. Payments kept flat at today's amounts, no new charges.
Use a free calculator, or get your HELOC rate from Shawn.
Step by step
- Pull every statement. Note balance, APR and the payment you actually make.
- Size the line. Cover the balances plus a small cushion. A bigger line is a bigger temptation.
- Compare quotes on margin and fees, not the first-year rate. Ask about annual fees and early-closure fees.
- Pay the cards in full within days of the line opening, and confirm zero balances on the next statements.
- Automate the payoff payment from your checking account for the amount that clears the line on your schedule.
- Decide on each card. Keep the oldest open for your credit history, remove the rest from your wallet and phone.
What happens to your credit score
Paying cards to zero usually lowers your revolving utilization, one of the biggest score factors, so many people see a rise within one or two statement cycles. The new HELOC adds a hard inquiry and a new account, which can cost a few points briefly. Some scoring models count a HELOC as revolving credit, so a nearly maxed line can weigh on utilization. Leaving headroom on the line helps.
Keeping the cards at zero
Most consolidations that fail don't fail on the rate. They fail when the cards fill back up. Three habits that help:
- Put one small recurring bill on a card you keep, paid in full automatically. Close or freeze the others.
- Build a $1,000 starter emergency fund so the next car repair doesn't go on a card.
- Don't redraw the HELOC for spending. The line is for this payoff.
What the lender will ask for
- A recent statement for each card you're paying off, so the payoff amounts and account numbers are exact.
- Proof of income: pay stubs and W-2s, or tax returns and bank statements if you're self-employed.
- Your mortgage statement and homeowners insurance declarations page.
- A property valuation. Many HELOCs use an automated valuation; larger lines or unusual homes get an appraisal. When an appraisal is needed.
If you have more than three or four cards
Pay the highest-rate balances first and leave any 0% promotional balances alone until their promo period is about to end. If the line won't cover everything, cover the cards with the highest rates and the ones near their limits, since utilization on each card affects your score as well as the total.
Write the plan down before closing: which card, what amount, and the date. Payoffs that are "mostly done" are how balances survive consolidation.
Choosing the payoff period
On $30,000 at 7.75% APR:
| Payoff period | Monthly payment | Total interest |
|---|---|---|
| 3 years | $937 | $3,720 |
| 5 years | $605 | $6,280 |
| 7 years | $464 | $8,960 |
| Interest only for 10 years | $194 | $23,250, and you still owe $30,000 |
The shortest payoff you can comfortably afford is usually right. If money is tight, pick five years and pay extra in good months; HELOCs rarely charge prepayment penalties after the first few years. Try your own balances.
Mistakes that undo the savings
- Paying only the interest-only minimum. It feels like a big win because the payment drops so much, but the balance doesn't move.
- Closing every card. Your available credit drops and utilization on any remaining balance spikes. Keep the oldest ones open at zero.
- Borrowing extra "while you're at it." A bigger line than the debt invites spending. Size the line to the payoff plus a small cushion.
- Forgetting the last statement. Interest keeps accruing between the statement and the payoff. Check each card a month later for a small leftover balance.
More questions
Should I keep the HELOC open after the cards are paid?
Often, yes, if the HELOC has no annual fee: an open line with a zero balance can be a backstop for real emergencies. If having it available is a temptation, ask the lender to lower the limit once the card payoffs are done.
Is HELOC interest tax-deductible when you use it to pay off credit cards?
No, HELOC interest isn't tax-deductible when the money pays off credit cards. Under current federal law, it's deductible only when the funds buy, build or substantially improve the home that secures the loan. The tax rules.
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Sources
Official sources behind this guide.
- What is the difference between a home equity loan and a HELOC? · Consumer Financial Protection Bureau
- What you should know about home equity lines of credit (booklet, PDF) · Consumer Financial Protection Bureau
- Publication 936, Home Mortgage Interest Deduction · Internal Revenue Service
- Regulation Z §1026.40: Requirements for home equity plans · Consumer Financial Protection Bureau