CBS News
3 times a home equity loan is better than a credit card
Getty Images
When it comes to financial products and services, timing is everything.
For example, those who locked in an ultra-low mortgage interest rate in 2020 and 2021 have saved significantly more than homebuyers who acted in the last two years. Meanwhile, savers earned exponentially more interest with certificates of deposit (CD) and high-yield savings accounts opened in 2023 and 2024 than they could have a few years ago. It’s vital to make the best and most informed choice at the right time. And it also means understanding when one product is better than another.
For homeowners, there are better times to use their home equity instead of their credit cards. Since their home will be the collateral in such transactions, it’s important to make an informed decision or you could risk losing your home if you can’t pay back what you’ve borrowed. But when matched against the alternatives, it becomes clear that a home equity loan is a great choice. Below, we’ll break down three times a home equity loan is better than a credit card.
Start exploring your home equity loan options here to see what rate you could qualify for.
3 times a home equity loan is better than a credit card
Here are three times homeowners may be better served using their home equity versus swiping their credit cards.
When interest rates are high
We’re still in a high-interest rate climate, even if many expect the Federal Reserve to start cutting rates this year. When the benchmark interest rate range is as high as it’s been (currently between 5.25% and 5.50%), rates on all borrowing products will rise in tandem.
But how much they actually climb will vary based on the product. So, credit cards are around 20% or higher right now, making the use of them a poor decision for most consumers. But home equity loans, even at their higher-than-usual rates, can still be secured for under 10% right now. That’s a substantial difference in rates and will help homeowners keep much more of their money intact.
See what home equity loan interest rate you could get here today.
When you want to use it for home repairs
It can be tempting to use your credit card to make major home repairs and renovations. But avoid that temptation and instead strongly consider using a home equity loan instead. Unlike credit cards (and personal loans), the interest you pay on your home equity loan can be tax-deductible if used for qualifying home repairs and renovations. This feature gives home equity loans a major edge over other borrowing products.
“Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan,” the IRS explains online. “The loan must be secured by the taxpayer’s main home or second home (qualified residence), and meet other requirements.”
When you know exactly how much you’ll need
It’s easy to get into credit card debt, especially when you don’t know exactly how much you need to borrow. But if you have an exact figure in mind, a home equity loan with its lump sum payouts may be preferable to the revolving credit line of a credit card. This will allow for more budgeting predictability since you’ll know exactly how much to pay back each month versus a credit card, in which minimum payments can and will change depending on your activity.
The bottom line
While credit cards can be a great resource for many, sometimes they’re just not as beneficial as the alternatives. And for many American homeowners, now may be one of those times. Instead, these owners should instead turn to their accumulated home equity for extra funding. By doing so they’ll secure a lower interest rate than they would have got with a credit card and, if they use it for eligible purposes, they’ll be able to deduct the interest they paid on the loan come tax season. Plus, the structure of the loan will be much easier to budget for than a credit card with adjustable payments each month. As noted, timing is everything but right now it’s generally a better time to use a home equity loan instead of a credit card.
Start exploring your home equity loan options online here and get started.
Mark Evans/Getty Images
Credit card debt has been surging nationwide — and with rates where they are, it’s no wonder why. According to the Federal Reserve, the average credit card rate sits at over 23% right now — up from just 14% just a couple of years ago and the highest rate on record.
Today’s sky-high credit card rates have made it incredibly hard for consumers to get out of debt. In fact, delinquencies on credit cards have more than doubled on credit cards since 2021 alone.
But credit card rates are variable, so they — and your monthly payment — can change fast. Will rates on credit cards climb in the new year, though?
Find out how to get rid of your existing credit card debt here.
Will credit card rates climb in 2025? Experts weigh in
Want to know where your rates may be headed in the next year? Here’s what experts had to say.
Credit card rates may remain the same
The Federal Reserve reduced its federal funds rate at its last three meetings — a move that typically results in interest rate dips on variable-rate products like credit cards and HELOCs.
But future rate cuts aren’t certain — especially with recent reports showing inflation ticking back up.
“As the Federal Reserve digests the recent election results and economic reports on inflation, housing, and employment, it appears they may be in a rate pause for 2025,” says Jason Fannon, senior partner at Cornerstone Financial Services. “This neutral stance would keep the average credit card interest rate near 21% annually.”
Compare your credit card debt relief options online now.
…or fall slightly
If the Fed does opt to cut rates, credit card rates could fall too — but likely not significantly.
“I don’t expect any significant change to credit card interest rates,” Fannon says. “If the Fed does cut or raise the Fed Funds rate, it would have to be a sizable move in either direction to change the average credit card interest rate.”
Could credit card rates fall below the 20% mark if the Fed reduces its rate? It’s doubtful, pros say.
“It’s hard to predict beyond 12 months from now but if consumers want to see below-20% rates, then we need a variety of things to align,” says Eric Elkins, founder and CEO of Double E Financial Solutions. “We need inflation to remain below 3% for at least 15 months, we need to see average wage increases above 3%, we probably would need government regulations passed to limit the APR on the credit card institutions, and we’d need the Fed to continue reducing interest rates for borrowers. Lots of things need to occur.”
Other factors that impact your credit card rates
It’s not just the Fed and other economic conditions that weigh on credit card rates. Your credit score can impact what rate you get, too. So, if your score is on the lower end, improving it could help you snag a lower rate on a new card, which you could then transfer your existing credit card balance to.
“Having a good to excellent credit score could make you attractive to other companies,” says Troy Young, founder and president of Destiny Financial Group. “With a high score, you may be able to sell your debt to another company for a lower rate — in other words, refinance it by doing a balance transfer.”
The bottom line
If credit card debt is weighing you down, consider your debt relief options. There are debt consolidation, debt settlement, debt forgiveness and many other strategies that can help you tackle that debt more efficiently. Here are the best debt relief companies to consider if you need professional debt relief guidance.
Watch CBS News
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
Watch CBS News
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
