Should You Use a Line of Credit to Pay Off Credit Card Debt?

I’m currently paying off some credit card debt and was wondering if I could apply for a line of credit to consolidate my debt at a lower interest rate and reduce my monthly payments. Is this a smart idea?
—Nicole

Should I transfer credit card debt to a line of credit?

A line of credit can be a smart way to consolidate credit card debt if you qualify for a lower interest rate and commit to using it solely to pay down balances. Lines of credit often carry much lower interest than typical credit cards, which can reduce the total interest you pay and help you repay debt faster.

Average credit card interest rates are often near 20% or higher, while lines of credit commonly range from about 4% to 10% depending on the lender, whether the line is secured or unsecured, and your credit history. Keep in mind most lines of credit have variable rates, so when the lender’s prime rate rises, the interest on your line will likely rise as well.

However, a line of credit is not automatically the best solution for everyone. It can affect your debt-to-income ratio and your credit utilization—two factors underwriters consider when you apply for a mortgage, personal loan, or other credit. Whether a line of credit is right for you depends on your creditworthiness, spending habits and financial goals.

When a line of credit can make sense

You can’t get a balance transfer or a lower card rate

Before applying for a line of credit, ask your card issuer whether they’ll lower your interest rate or offer a balance transfer to a card with a promotional APR. Balance transfers can reduce interest costs, but introductory rates are usually temporary—so know when the promotional period ends and what the rate will revert to.

A balance transfer or a negotiated lower rate on your current card can be a safer option for people who struggle with spending discipline, since those options don’t add a new source of credit that could be misused.

You qualify for a line of credit

Lenders typically look for steady income, a reasonable credit score, and, for secured lines, collateral. Typical qualifying factors include:

• Household income often in the $35,000–$50,000 range or higher;
• A credit score generally around 660 or better;
• Collateral, if applying for a secured line of credit.

Lenders may decline applications if you’re behind on payments, maxed out other credit, have a low score, or carry a high debt-to-income ratio. Even if approved, a high DTI or poor credit can result in a higher interest rate.

You can get a competitive rate

If you have a solid credit history, shop around for the lowest available rate. Secured lines usually offer lower rates because the lender can seize collateral if you default, which reduces their risk. Unsecured lines tend to be pricier for borrowers with weaker credit.

You are disciplined with spending

Only consider a line of credit if you won’t treat it as fresh spending power. If you pay off credit cards with the line but then run those cards up again, you’ll face payments on both the line of credit and the cards, increasing your total debt and financial stress. Use a line of credit strictly to eliminate higher-rate balances and avoid adding new charges to your cards.

You’re not planning to seek major credit soon

Lines of credit can affect your credit utilization and debt-to-income ratio. High utilization or a high DTI can make it harder to qualify for a mortgage, car loan, or other credit. If you expect to apply for a major loan soon, consider how opening or drawing on a line of credit will look to lenders.

Alternatives to using a line of credit

There are several alternatives to consider depending on your situation. Start by talking to your bank or card issuer—many will offer temporary rate reductions, payment plans or balance transfer options that can reduce interest costs without adding a new line of credit.

• Negotiate a temporarily lower interest rate
• Consider a credit card balance transfer with a promotional APR
• Request a structured payment plan that fits your budget

If those options aren’t available or sufficient, consider reaching out to a non-profit credit counselling agency. A certified counsellor can review your finances, suggest a repayment strategy, and help you negotiate with creditors. Free, professional guidance can provide a clear plan to reduce debt and stress.

This article was written by Anna Guglielmi, a certified credit counsellor and financial coach with Credit Canada. She holds certifications through Accredited Financial Counsellor Canada (AFCC) and the Bankruptcy and Insolvency Act (BIA).

Credit Canada is a national, non-profit credit counselling organization that provides free advice and debt management services to Canadians. If you’re struggling with debt, you can contact Credit Canada for confidential counselling and practical help.

Read more about building credit in Canada

• How to get a mortgage with bad credit
• How much credit card debt does the average Canadian have?
• What to do if you’re a victim of bank account or credit card fraud
• How to build a credit history while renting in Canada