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When to Get a Home-Equity Line of Credit

Watch out for teaser rates and doubling up on debt.

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

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Bank of America

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advertise rates as low as 4.49% for a line of credit, while


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offers 5%.

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

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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.

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"Even for people with good credit, it can be a challenge," McClary says. "Middle-of-the-road might not cut it today."

Doubling Up on Debt

If your credit card debt is out of control, taking on a HELOC to pay it down may not solve your problem if you don't cut up the plastic.

Credit cards are good to have in a bind and can help your credit score if you keep balances down and pay on time. But make sure that you can avoid the temptation to overspend if you choose to keep those lines open. And if you've been in trouble with debt before, putting your home on the line might not be such a good idea to begin with.

"I've seen many people get themselves into a lot more trouble," says McClary. "They pay off the balances and leave the cards open -- then they turn to the credit cards to get them out of a pinch and run up the balances again."

Once that happens, you've sapped the equity from your home, still have the loan payments and have compounded that with more high-interest debt.