Using a Line of Credit to Pay Off Credit Card Debt

Using a line of credit to pay off credit card debt can make sense if the line of credit has a lower interest rate and you have a clear repayment plan.

You can use the line of credit to pay off one or more cards, then focus on repaying a single balance. However, consolidation only helps if you avoid running the credit cards back up again.

KOHO Credit Builder

KOHO Credit Builder helps Canadians establish or improve their credit history through consistent monthly payments, without relying on a traditional credit card.

With KOHO Credit Builder, you can:

• See an average credit score increase of 74 points*
• Get approved without a hard credit check or minimum deposit
• Pay no interest on the line of credit
• Track your credit score and credit report directly in the KOHO app
• Build credit history through monthly payments reported to the credit bureaus

How Does Using a Line of Credit to Pay Off Credit Cards Work?

You borrow from the line of credit and use that money to pay down your credit card balances.

For example, suppose you owe:

• $4,000 on one credit card
• $3,000 on another
• $1,000 on a third

You could use $8,000 from a line of credit to pay off all three cards.

You would then owe $8,000 on the line of credit instead of carrying balances across several cards.

The debt has not disappeared. You have simply moved it to a different borrowing product.

Why Use a Line of Credit for Credit Card Debt?

The main reason is usually the interest rate.

Credit cards often charge relatively high interest rates on unpaid balances.

A personal line of credit may offer a lower rate, depending on your credit profile and lender.

If the difference is large enough, moving the balance could reduce how much interest you pay while repaying the debt.

Can It Lower Your Monthly Payments?

Possibly.

A line of credit may have a lower minimum payment than the combined minimum payments on several credit cards.

That can improve short-term cash flow.

However, a lower minimum payment is not always a benefit.

If you only make the minimum, you may stay in debt much longer.

Try to keep paying at least as much each month as you were paying toward the credit cards before consolidation.

Will It Help Your Credit Score?

It can, but there is no guarantee.

Paying down credit card balances can lower your credit utilization ratio, which may support your credit score.

For example, moving a large balance off a nearly maxed-out credit card can significantly reduce the utilization on that card.

However, you still owe the money.

Your score can also be affected by:

• The credit inquiry when you apply
• The new line of credit
• Your total debt
• Whether you make payments on time
• Whether you begin using the credit cards again

Debt consolidation should primarily be used to improve your finances, not just to try to increase your score.

What Are the Risks?

The biggest risk is ending up with both line-of-credit debt and new credit card balances.

After paying off the cards, your available credit returns.

If you begin spending on those cards again, you could end up owing more than before.

Other risks include:

• Variable interest rates
• Minimum payments that allow debt to remain for years
• Additional borrowing because credit is available
• Fees depending on the account
• Using a secured line of credit that puts an asset at risk

Consolidation works best when combined with a spending plan.

Should You Close Your Credit Cards After Paying Them Off?

Not necessarily.

Closing a credit card can reduce your available credit and may affect your credit utilization.

Older accounts can also contribute to the length of your credit history.

However, keeping a card open is not helpful if access to the available limit causes you to overspend.

You might instead:

• Remove the card from your wallet
• Delete it from shopping apps
• Lower the limit
• Keep one card for essential purchases
• Close accounts that are expensive or difficult to manage

Choose the approach that makes it easiest to stay out of debt.

Secured vs. Unsecured Line of Credit for Debt Consolidation

An unsecured line of credit does not require collateral.

A secured line of credit is backed by an asset, such as your home.

A secured product may offer a lower interest rate, but it also creates more risk.

For example, using a home equity line of credit to repay credit cards turns unsecured debt into debt secured against your home.

That can reduce interest costs, but failing to repay can have more serious consequences.

Is a Personal Loan Better Than a Line of Credit?

A personal loan may be better if you want a fixed repayment schedule.

You receive a set amount, then make scheduled payments until the loan is repaid.

A line of credit is more flexible because you can borrow again after repayment.

That flexibility can be useful, but it can also make it easier to remain in debt.

If your priority is eliminating debt by a specific date, the structure of a personal loan may be easier to manage.

When Does Using a Line of Credit Make Sense?

It may make sense when:

• The interest rate is meaningfully lower than your credit card rates
• You qualify for enough credit to consolidate the balances
• You can afford consistent repayments
• You have stopped adding new credit card debt
• Fees do not erase the interest savings

Calculate the actual savings before moving the debt.

When Should You Avoid It?

Using a line of credit may not solve the problem if:

• You are still spending more than you earn
• You plan to continue carrying credit card balances
• The interest rate is not much lower
• You can only afford the minimum payment
• You are converting unsecured debt into debt secured by your home without understanding the risk

In these situations, the problem may be cash flow rather than the type of debt.

How to Pay Off the Line of Credit Faster

Once the credit cards are cleared:

1. Stop adding new balances.
2. Set a fixed monthly repayment amount.
3. Pay more than the minimum whenever possible.
4. Automate payments after payday.
5. Put extra income toward the balance.
6. Avoid borrowing from the line again for discretionary expenses.

For example, if you were previously paying $600 per month across several credit cards, continue putting that $600 toward the line of credit instead of dropping to its lower minimum payment.

Is It Worth Using a Line of Credit to Pay Off Credit Cards?

It can be worthwhile if you substantially reduce your interest rate and use the opportunity to eliminate the debt.

The strategy is less effective if you simply move the debt and continue spending.

Before consolidating, compare the line of credit's interest rate, fees and repayment requirements with your existing cards. Then create a repayment plan with a specific monthly amount and target date.

The goal should be to use the lower cost credit to get out of debt faster, not to create more room to borrow.

*Based on users with a starting score of 450 or under and who used all of our credit building tools (i.e. Credit Building, Secured Credit Building) for 12+ months with on time payments. Credit building tools we offer are not a credit repair tool and does not guarantee an improvement in credit score. Credit scores are based on complex models involving a variety of factors. Consistent on-time payments help improve scores and missed or late payments may cause credit scores to decrease. Outcomes may vary among users.