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Equity costs less than credit so financing a credit card debt with equity is cheaper. However, there are a few cursory related issues such as capital for home improvements, amount of credit card debt, and refinancing that can make the interest rate benefit not worthwhile. This article will discuss the various advantages, disadvantages and factors that may assist with the decision to pay off credit card debt with home equity, and then follow up with a few tips that may prevent one from having to use home equity to pay off debt.

Advantages:

The larger the credit card debt, the more practical a home equity loan becomes once all other options are deemed unavailable. In other words, if there is no other cost saving solution, a home equity loan may not be such a bad idea.

*Net Gain on Interest Rate Savings: Equity loans and lines of credit cost in range of 5-8% in interest whereas credit cards charge between 9-20% in compounded interest. Depending on the amount of credit card debt one has, this can make a significant annualized difference in savings. For example, if an individual has $7,000.00 of credit card debt at 14%, the nominal non-compounded interest for one year would be $980.00. At 6% through a home equity loan, that amount would be closer to $420.00 nominal i.e. non-compounded.

*Enhanced Individual Cash Flow: With less debt tied up in credit cards, monthly expenses go down all other expenses held constant. This can place one in a better standing with credit card companies and allow for more cash flow with which to manage monthly costs.

Disadvantages:

Since homes are often a source of financial security for individuals and family, utilizing the equity in one's home can be a drain on financial assets that may be needed in the future.

*Refinancing causes Re-Amortization of Mortgage: When a mortgage is refinanced to include a second mortgage via a home equity loan, the mortgage amortization schedule can reset meaning the interest payments will likely rise in proportion to capital contributions. The difference between the newly amortized repayment terms and the savings from paying off the credit card debt may be too low to consider.

*Equity leveraging Declines: Should the need arise for a home improvement emergency or unexpected family cost, one may have be required to resort to credit cards once again making the equity loan redundant. In this case, one should assess the potential for future expenses and individual savings and cash-flow to assure the equity loan doesn't

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