Are you drowning in expensive credit card debt with high interest rates?

I hope you aren’t but if you are, it’s okay. You can dig yourself out.

You’ve probably heard personal finance experts recommend paying off your expensive debt with less expensive debt like a HELOC.

Side note: HELOC stands for Home Equity Line of Credit. I wrote an article on it a few months ago. Here’s the link if you want to read it:

What is a Home Equity Line of Credit?

Back to what I was saying.

It makes financial sense to pay off your expensive debt with cheaper debt.

After all, paying 5% interest on a HELOC is better than paying 20% interest on credit cards.

But it’s a really bad idea to do that and here’s why.

1. You Lose The Psychological Boost Paying Off The Small Balance

If you have 5 credit cards with a total balance of $15,000 and roll that into a HELOC, it will take years to pay that off.

It will be a slow and difficult plod to get there.

But if one of those credit cards has a balance of only $1,000, you can pay that off in months.

That’s a huge psychological boost.

You feel like you’ve accomplished something when you pay off one balance and you have.

And the best part is you get to roll that payment into the next credit card balance.

There’s actually a name to this method. It’s called the snow balling method.

And many personal finance experts love this method.

2. You Lose Flexibility With a HELOC

Reducing your interest rate to 5% comes with multiple costs.

And one is flexibility.

There’s a big difference between a bank and a credit card company.

A bank wants a definite end point to the loan they give you.

The credit card company wants to keep you in debt forever.

The point I’m trying to make is the payment on the HELOC is higher because it typically has a 15 year term.

A credit card’s minimum payment is lower.

So if you have an emergency one month, you have more flexibility with credit card payments than HELOC payments.

I like having flexibility.

3. The HELOC Lender Can Take Your House

I saved the best reason for last. This is the only reason you need not to consolidate your debt with a HELOC.

If you don’t pay your HELOC payment, the bank can take your house and make you homeless.

Credit cards can’t.

It’s the difference between a secured creditor (the HELOC bank) and an unsecured creditor (the credit card company).

The reason you get a 5% interest rate with a HELOC is because you put up your house a collateral.

In return for putting up the collateral, the bank gives you a 5% interest rate but can take your house to pay back the loan.

Credit cards are different.

They don’t have any collateral. Think about it. Can they take back the steak you ate last night?

No they can’t. That’s why the interest rate is 20%.

If you can’t pay, they just get to annoy the crap out of you until you do pay.

Or ding your credit score.

I don’t know about you but I’d rather deal with either of those than not having a roof over my head.


I know you want to pay off debt as quickly as possible. I get that.

If you’re interested, I discuss 2 different methods in this article: What is the Fastest Way to Pay Off Credit Card Debt?

It’s hard to argue against the logic that it makes sense financially to pay off expensive debt with cheaper debt.

Because it saves you money.

But it comes with a steep price.

So next time you hear someone tell you to pay off expensive debt with your HELOC, you’ll know the consequences.

Have you paid off credit card debt?

How did you do it?

Let me know in the comments below.

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