If you're dealing with five-figure credit card debt, you may have heard that your home equity could offer you a low-cost way to pay your debt off. Home equity loans and home equity lines of credit (HELOCs) typically come with lower interest rates than credit cards which could lead to big savings in the long run.

But just how big might those savings be?

Say you have \$20,000 in credit card debt. How much would you save by using a home equity loan or HELOC to pay that debt off? That answer depends on the interest rate of your home equity loan or HELOC, the term of the loan or line of credit and whether or not your interest rate is fixed or variable. Below, we'll calculate how much you'd save by using home equity to pay off \$20,000 in credit card debt.

## How much would you save by using home equity to pay off \$20,000 in credit card debt?

The amount of money you would save by using your home equity to pay off \$20,000 in credit card debt depends on your interest rate, your term and the type of financial product product you use. Below, we'll calculate what your savings might be with three popular home equity borrowing options. Keep in mind that credit card interest rates are variable and may change from time to time. These figures assume that your credit card interest rates remain the same throughout the payoff periods mentioned:

### Here's how much you'd save with a 10-year home equity loan

The average 10-year fixed home equity loan interest rate is currently 8.77%. If you used this type of loan to pay off \$20,000 in credit card debt, your monthly payments would be \$250.87 and you would pay a total of \$10,104.25 in interest over the life of the loan. That brings your total payoff cost to \$30,104.25 over 10 years.

The average credit card interest rate is currently 20.71%. If you owe \$20,000 in credit card debt at 20.71% interest and want to pay it off in 10 years, you'll need to pay \$395 per month (\$144.13 more per month than a 10-year home equity loan). You'll also pay \$27,516 in interest (\$17,411.75 more interest than a 10-year home equity loan) for a total payoff cost of \$47,516 over the 10-year period.

### Here's how much you'd save with a 15-year home equity loan

The average 15-year fixed home equity loan interest rate is currently 8.76%. At that rate, your monthly payments on a \$20,000 15-year home equity loan would be \$200.01. And, you would pay a total of \$16,001.41 in interest over the life of the loan for a total payoff cost of \$36,001.41.

If you wanted to pay off a \$20,000 credit card balance with the average 20.71% interest rate in 15 years, you would have to pay \$361 per month (\$160.99 more per month than a 15-year home equity loan). You'll also pay \$45,123 in interest (\$29,121.59 more interest than a 15-year home equity loan) for a total payoff cost of \$65,123.

### Here's how much you'd save with a HELOC

HELOCs typically have variable interest rates. So, your rate is likely to change throughout the payoff period. Moreover, you don't have to make payments toward your principal balance during the draw period of a HELOC (usually the first five to 10 years). Instead, you'll usually be required to make interest-only payments during this period.

Considering the unique nature of the HELOC draw period and its variable interest rate, it would be difficult to determine exactly how much money you could save using one of these financial products to pay off your credit card debt with any long-term certainty.

On the other hand, it's worth noting that the average HELOC interest rate is currently 9.07%. So, if you started paying your HELOC off as soon as you used it to eliminate \$20,000 in credit card debt, with a goal of paying your HELOC off completely in 10 years, you would need to pay \$254.11 per month (\$140.89 less than you would pay toward an average credit card monthly to pay off a \$20,000 balance in 10 years). You would also pay \$10,493.18 in interest in the process of paying your debt off (\$17,022.82 less interest than you would pay on the average credit card).

Then again, it's important to keep in mind that both credit cards and HELOCs offer variable interest rates that are subject to change many times over a 10-year payoff period.

## The bottom line

Using your home equity to pay off \$20,000 in credit card debt can result in savings ranging from \$140.89 to \$160.99 per month. Over the payoff period, you could save anywhere from \$17,022.82 to \$29,121.59 in interest, depending on how you choose to tap into your home equity to pay your credit card debt off, making this a viable alternative for many borrowers right now.

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