Can I lower my taxes by paying off consumer (credit-card) debt with a home equity loan?
There are two good reasons to refinance your home to pay off credit-card debt. First, home equity interest is fully tax-deductible up to $100,000, while there s no tax deduction for credit card interest. Second, most credit cards charge 15% to 22% interest. Home equity loans have much lower rates, typically a point or two above the prime rate. It s almost always a good idea to substitute a low-interest loan for high-cost debt. But there are also negatives. Most people pay off credit-card debt in about 15 months, keeping total interest costs down. Home equity loans generally are in effect for much longer. Over the long run, an equity loan can cost you more. Then, there is the risk of cleaning up your consumer credit with an equity loan, only to run up debt on your credit cards all over again.
