Should I take out a line of credit to pay off my credit card debt? (2024)

FAQs

Should I take out a line of credit to pay off my credit card debt? ›

Because you can usually get a line of credit at a lower interest rate than your credit card, using a line of credit to pay off credit card debt can reduce your total interest costs and reduce the amount of time you're in debt.

Using a line of credit to pay off your credit card has several advantages. First, you'll save money if the interest rate is lower than your credit card. Second, even if you only make the minimum payments, you'll pay it off more quickly than you'll pay off a credit card making minimum payments.

Taking out a loan to pay off credit card debt may help you pay off debt faster and at a lower interest rate. But you might only qualify for a low interest rate if your credit is good. And personal loans can come with fees that may offset any interest savings.

One option to help ease this burden is to use a home equity line of credit, or HELOC, to pay off your credit card debt and put you on a more stable financial footing. While this may be a good choice in some situations, it isn't always right for everyone, and you risk losing your home if you don't repay a HELOC.

Lines of credit, like any financial product, have advantages and disadvantages, depending on how you use them. On one hand, excessive borrowing against a line of credit can get you into financial trouble. On the other hand, lines of credit can be cost-effective solutions to fund unexpected or major expenses.

The debt avalanche method is likely to save you the most money — though the process may not be as satisfying as the snowball method. It focuses on paying down the credit card with the highest interest rate first. With the debt avalanche method, you'll continue to pay the minimum payment on all your cards.

To pay off $3,000 in credit card debt within 36 months, you will need to pay $109 per month, assuming an APR of 18%. You would incur $912 in interest charges during that time, but you could avoid much of this extra cost and pay off your debt faster by using a 0% APR balance transfer credit card.

Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio. While in some cases your credit scores may dip slightly from paying off debt, that doesn't mean you should ever ignore what you owe.

The general rule of thumb is that you shouldn't spend more than 10 percent of your take-home income on credit card debt.

What is the fastest way to pay off a line of credit? ›

The debt avalanche method

This method focuses on paying off the debt with the highest interest rate first. After that's paid, you shift to the debt with the next highest interest rate and so on.

If so, the short answer is usually no, you don't need to close the accounts. Paying down or paying off your credit cards is great for credit scores, but closing those accounts will likely cause your credit scores to dip, at least for a little while. This is especially true if you close more than one card.

You may use a personal line of credit for unexpected expenses or for consolidating higher interest rate loans. Interest rates are usually lower than for credit cards and personal loans.

Because you can usually get a line of credit at a lower interest rate than your credit card, using a line of credit to pay off credit card debt can reduce your total interest costs and reduce the amount of time you're in debt.

Accepting and using a line of credit will affect your credit score. However, using your LOC responsibly can help to improve your score over time. Lenders run hard credit checks when individuals accept a line of credit offered to them. This commonly leads to a drop in credit score.

Consider the snowball method of paying off debt.

This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance. This method can help you build momentum as each balance is paid off.

What types of debt can I transfer using a balance transfer? Balance transfers are usually used for credit card debt. But some issuers also let you move balances from other accounts, such as personal loans, student loans or lines of credit.

It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.

Pay off cards with higher APRs or larger balances first. Determine exactly which card will cost you the most in fees and interest, then pay that card down until another card will cost you more. Always make minimum payments on time to protect your credit history.