If you’re like many Americans, credit card balances have crept up over the past few years. With rising interest rates, carrying balances can feel like a never-ending cycle—minimum payments barely make a dent, and interest charges eat away at your paycheck.
But if you own a home, there’s a potential solution: a cash-out refinance. This strategy allows you to use your home’s equity to pay off high-interest debt, lower your monthly payments, and take control of your finances.
Here’s how it works—and why it might be the reset you need.
What Is a Cash-Out Refinance?
A cash-out refinance replaces your current mortgage with a new, larger loan. The difference between your old loan balance and the new loan is paid out to you in cash. You can then use that money however you’d like—many homeowners use it to pay off credit cards, student loans, or medical debt.
For example:
- Current mortgage balance: $250,000
- New mortgage balance: $300,000
- Cash to you: $50,000 (before closing costs)
That $50,000 could be used to wipe out high-interest credit cards in one move.
Why Credit Card Debt Is So Costly
Credit card debt is one of the most expensive types of borrowing because:
- Average rates exceed 20% in today’s market.
- Making only minimum payments can keep you in debt for decades.
- Interest compounds quickly, so balances grow even if you’re making payments.
Compare that to a mortgage rate—even at 6–7%, it’s still dramatically lower than what you’re paying on most credit cards.
How a Cash-Out Refinance Helps
A cash-out refinance can give you financial breathing room because:
- You Swap High Interest for Lower Interest
Instead of paying 20%+ on multiple cards, you consolidate that debt into your mortgage at a much lower rate. - You Simplify Payments
One mortgage payment is easier to manage than juggling five or six credit card bills every month. - You Improve Cash Flow
Because your interest rate is lower, your monthly payment may drop significantly—even after refinancing. - You Can Rebuild Your Credit
Paying off revolving credit balances reduces your credit utilization ratio, which is a big factor in your credit score.
A Simple Example
Imagine you have $40,000 in credit card debt with an average interest rate of 22%. Your minimum payments might be over $1,200 per month, and most of that is going toward interest, not principal.
Now imagine rolling that $40,000 into a cash-out refinance at 6.5%. Your monthly payment on that debt could shrink to less than half of what you’re paying now—plus you’re paying down principal right away, not just interest.
That kind of change can free up money for savings, emergencies, or simply breathing easier each month.
Things to Consider Before Refinancing
While a cash-out refinance can be a powerful tool, it’s not right for everyone. Here are a few things to weigh:
- Closing Costs: Like any refinance, you’ll pay closing costs, which are usually 2–5% of the loan amount.
- New Loan Term: Extending your loan term can lower your payment, but it also means paying interest over a longer period.
- Discipline Matters: A cash-out refinance won’t help long term if you run credit cards back up again. It’s best paired with a plan to stay out of debt.
- Equity Requirements: You’ll need enough equity in your home—typically at least 20%—to qualify.
Is It Worth It?
Here’s the bottom line: if you’re drowning in credit card debt, a cash-out refinance could be a game-changer because it lets you:
- Consolidate debt into one manageable payment
- Save thousands in interest
- Improve your financial stability
But the best way to know is to run the numbers for your specific situation.
Final Thoughts
Credit card debt doesn’t have to control your life. With home equity on your side, a cash-out refinance can be the tool that finally helps you break free from high-interest balances and move toward financial freedom.
If you’re ready to see whether this strategy makes sense for you, connect with The Derek Parent Team. We’ll review your mortgage, run scenarios based on today’s rates, and help you decide if a cash-out refinance can eliminate your credit card debt once and for all.