Replace Your Credit Card Debt with a Home Equity Loan Credit cards can be a great convenience, but the interest rates charged on unpaid balances are usually much higher than those found with home equity loans. If you have significant credit card debt you should consider paying off the credit card balance by getting a home equity loan. If you itemize your tax deductions you may save some taxes too. Payment Comparison Calculator Credit card balance $ Credit card interest rate % Home equity loan interest rate % Marginal income tax bracket 10% 15% 25% 28% 33% 35% Monthly interest on credit card balance Monthly interest by replacing credit card balance with home equity loan Monthly savings Potential annual tax savings by deducting home equity loan interest (Consult your tax advisor for details.) Interest is compounded monthly. This calculator is to be used for estimation purposes only. The financial institution is not responsible for its accuracy and the results are not guaranteed. Most credit cards now require a minimum payment of 4% of the outstanding balance. Paying that same amount on a home equity loan with a lower interest rate will enable you to pay off the balance much faster. Eliminate Your Debt Faster Credit card balance $ Credit card interest rate % Home equity loan interest rate % Typical 4% minimum payment on credit card By making that minimum monthly payment, how long will it take to pay off the debt? With the credit card With a home equity loan Interest is compounded monthly. This calculator is to be used for estimation purposes only. The financial institution is not responsible for its accuracy and the results are not guaranteed. Using a home equity loan to pay off credit card debt can be an effective way to use the equity in your home as an effective financial tool. How does a home equity loan work? You may get a special check or have a "line of credit" that you can access as "overdraft protection" against your checking account. There are usually forms to sign and an approval process that is not too difficult. There may be some form of commitment fee. The amount you can borrow depends on the amount of equity in your home and your other credit characteristics. A general rule of thumb is that you may be able to borrow up to an amount so the total debt against your home (including the first mortgage and any other loans where your home is pledged as collateral) is less than 75% or 80% of the current value of your home. The interest rate charged will usually be variable and will be tied to some published index, like the prime rate. Be sure to check out the rate details. Usually, you repay the loan in regular installments and with minimum repayments required. With some home equity loans, the minimum payments may only be the interest on the loan and you may be required to repay the loan at a certain date. Beware of the risks Borrowing against the equity in your home should be considered carefully. Even though there are benefits, these types of loans are like other loans - you pay interest and they must be paid off. Most people use home equity loans for "conservative" purposes and avoid making risky investments or extravagant spending with the proceeds. Read and understand all the details before signing. Loan documents can be confusing and the easy process of getting this type of loan can mask the costs and risks.