Should you pay off your credit card debt with equity from your home? My simple answer is no but honestly it isn’t a simple matter at all.
Let’s take the case of Mr. Joe Smith who is carrying $15,000 in credit card debt, charging him 15% interest each year. Let’s assume that Joe Smith has learned the error of his ways, despite watching his home theater each night, and is now on the righteous path of financial prosperity and has stopped hemorrhaging money - now he wants to make right. Despite his credit card irresponsibility, Joe actually has quite a bit of equity stored up in his home and has considered taking out a line of credit to pay off the credit card debt. By lowering his rate from 15% to something as low as 6%, which is tax deductible, you’re talking about a savings of a good $1,500 a year. That’s serious money and that’s the main benefit of doing it.
So what’s the risk? The big risk in doing this is that if you can’t pay off a credit card, it’s not that bad. Since it’s unsecured credit, they can’t come and legally seize anything (unless you go bankrupt, and even then your home could be safe if you live in a state like Florida). If you pay off your credit card with a home equity loan and then you can’t pay off that home equity loan… they will come and take your house.
Ultimately, moving shifting your debt from credit to home equity is a risky endeavor that has a significant payoff if you can remain responsible (a characteristic that, arguably, you may not have exhibited when you racked up the debt). If you can’t, you can take a bad situation and make it much much worse. If you can swing it, it might be better to see if you can utilize a 0% balance transfer to pay off that debt. Swapping one unsecured debt for another is better than swapping it for a secured debt - plus, 0% is a lower rate even though it would be for a shorter period of time.
http://www.bargaineering.com/articles/pay-off-credit-cards-with-home-equity.html
