When to Get a Home-Equity Line of Credit

Taking out a home-equity line of credit to pay off costly credit card debt might seem like an attractive option as interest rates have dropped.

Here are some important factors to consider when weighing the costs and benefits.

Interest Rates and Other Costs

If you're trying to get a handle on credit cards with double-digit interest rates, home-equity loans can seem pretty cheap at first glance. The Web sites of Wells Fargo(WFC Quote) and Bank of America(BAC Quote) advertise rates as low as 4.49% for a line of credit, while Wachovia(WB Quote) offers 5%.

Local bank rates can be even lower, with Ohio's Community First Bank offering a rate of 2.99%, according to BankingMyWay.com.

Keep in mind that those rates are teasers and will only apply to borrowers with stellar credit scores, says Bruce McClary, a corporate trainer at Clearpoint Financial Solutions. Also remember that home loans have closing costs.

Once you figure out all the costs of the HELOC, compare monthly payments and interest rates with those of your credit card. Determine which option costs less over the time it will take you to repay the debt.

Qualifying for the Loan

Lenders have tightened standards dramatically in the risky credit market, making it difficult to get a loan and even harder to get a good rate.

Even those with existing lines of credit and good track records have seen the limits cut down, McClary says. If your credit track record has major blemishes, you might not qualify for a loan at all. If your credit score is near or above 650, you might qualify, but don't expect to get the prime rate. Keep in mind that borrowers in markets with swiftly plunging home prices -- like California, Michigan or Florida -- will have an even harder time qualifying.