Moving Credit Card Debt to HELOC Reduces Interest—Expert

Transferring credit card debt to a home equity line of credit (HELOC) can considerably lower the amount of interest a borrower pays, Bruce McClary, vice president of communications for the National Foundation for Credit Counseling advised cardholders in a U.S. News report.

McClary said that since HELOC is secured by home as collateral, it presents a lower risk to lenders than other loan types. Through this method, a bank or other lender typically will allow customers to borrow at an interest rate much lower than on a credit card, which is usually unsecured. The average APR on a HELOC all over the U.S. is less than 6% while credit cards have about 17% to 24%.

However, using a HELOC to repay credit card debt has serious risks like losing a customer’s property and should be taken seriously, the finance expert cautioned. Failure to fully repay a HELOC can put customer’s home at risk.

McClary also warned that some people who move their card debt to a HELOC might be tempted to acquire more debt after seeing their credit card ledger cleared.

There are many alternatives to HELOC to reduce credit card debt. McClary and Todd Christensen, education manager at Debt Reduction Services, a Boise, Idaho-based credit counselling agency, recommend customers to get a debt consolidation loan from a credit union, bank, or online lender. Like HELOC, loans of this type are lower.

Another option is acquiring a balance transfer card. This credit card type can help borrowers pay off their balances at zero to very minimal interest, Rachana Bhatt, managing director of the U.S. Branded Card Business at Barclays, says. However, they must pay a balance transfer fee.