Can I use a line of credit to pay a credit card? (2024)

Can I use a line of credit to pay a credit card?

If you're approved, the lender will provide you with details about the credit limit, interest rate, draw period and repayment terms for which you qualify. You can then use the line of credit to pay off your credit cards.

A line of credit is a type of loan that lets you borrow money up to a pre-set limit. You don't need to use the funds for a specific purpose. You may use as little or as much of the funds as you like, up to a specified maximum. You may pay back the money you owe at any time.

One common use of HELOC funds is to consolidate credit card debt or pay off other high-interest debts. As mentioned, HELOCs traditionally carry lower interest rates than credit cards and other similar lines of credit. This is an advantage for homeowners who are currently trying to pay down debts.

Opening a personal LOC usually requires a credit history of no defaults, a credit score of 670 or higher, and reliable income. Having savings helps, as does collateral in the form of stocks or certificates of deposit (CDs), though collateral is not required for a personal LOC.

Paying a bill using a credit card or line of credit is treated the same as getting a cash advance. You'll be charged interest from the time you make the payment, just like you would for a cash advance.

Taking out a personal loan for credit card debt can help you solve many of these problems. You can use your personal loan to pay off your credit card debt in full. Since personal loans typically have lower interest rates than credit cards, you might even save money in interest charges over time.

Whether you're renovating your home or consolidating debt a line of credit allows you to withdraw funds up to the credit limit, and pay down at your convenience, provided monthly minimum payments are made.

With any loan product, you can run the risk of getting into more debt than you can manage. If you cannot pay off the credit that you use, then your credit score will decline. The lender may also go after your assets or, for example, garnish your wages to get its money back.

With a line of credit, you can use your borrowed funds by transferring money from your loan account directly into a checking account. Also, the interest rates on lines of credit tend to be lower than credit cards.

To calculate the monthly payment on a $50,000 HELOC, you need to know the interest rate and the loan term length. For example, if the interest rate is 9% and the loan term is 30 years, the monthly payment would be approximately $402.

Is there anything you Cannot use a HELOC for?

It's not a good idea to use a HELOC to fund a vacation, buy a car, pay off credit card debt, pay for college, or invest in real estate. If you fail to make payments on a HELOC, you could lose your house to foreclosure.

While all lenders have their own requirements as to what credit scores they want their applicants to have for a line of credit, it's a good bet that some lenders will approve applicants with scores that hover around 660 to 712, which qualifies as a Fair score.

A good rule of thumb is to keep your credit utilization under 30 percent. This means that if you have $10,000 in available credit, you don't ever want your balances to go over $3,000. If your balance exceeds the 30 percent ratio, try to pay it off as soon as possible; otherwise, your credit score may suffer.

The process of paying back the line of credit is simple. You pay back part or all of the capital borrowed from your line of credit at your own pace. However, you must repay the minimum payment shown on your monthly statement.

A powerful financial tool: The money from a personal line of credit can be used for just about anything, so it can be a powerful way to pay down higher-interest debt.

You can apply for a personal loan or a personal line of credit and use this as your down payment. Some financial institutions don't allow this, however, because one of the aims of a down payment is to demonstrate that you have the financial resources to buy a property.

The debt avalanche method

This method focuses on paying off the debt with the highest interest rate first. After that's paid, you shift to the debt with the next highest interest rate and so on. It's a highly efficient way to pay down debt.

If you can afford to pay off your debt during the promotional APR period, a balance transfer card may be your best bet. For example, with $5,000 of debt, a six-month intro APR balance transfer card would allow you to pay off your debt interest-free with $833.33/month payments.

How much credit card debt is normal?

There isn't a specific amount of credit card debt that's considered too much. Instead, it depends on your individual financial situation and how you're using your credit cards. U.S. consumers had an average total credit card balance of $6,501 as of the third quarter (Q3) of 2023, a 10% increase from the previous year.

Problems with Personal Lines of Credit

The top two: getting approved for the loan and the interest rate banks will charge. Lines of credit are unsecured loans. That means the bank is taking a risk. The bank has to be certain the borrower has a credit history that shows (s)he will pay back the loan.

If you've received convenience checks linked to your credit card or line of credit, they can be used for a cash advance. Just write a check to yourself and take it to your financial institution to deposit or cash it.

A loan gives you a lump sum of money that you repay over a period of time. A line of credit lets you borrow money up to a limit, pay it back, and borrow again.

Loans and lines of credit are both types of bank-issued debt that serve different needs; approval depends on a borrower's credit score, financial history, and relationship with the lender.