:max_bytes(150000):strip_icc()/GettyImages-2145835398-7a032651d0e14f68a6fe0acb5419cf25.jpg "Should You Refinance Your Home to Pay Off Debt? Here’s What To Consider")
:max_bytes(150000):strip_icc():format(jpeg)/GettyImages-2145835398-7a032651d0e14f68a6fe0acb5419cf25.jpg)
Key Takeaways
- Cash-out refinancing can lower your interest costs, but it turns unsecured debt into a loan backed by your house—miss payments, and you could face foreclosure.
- Credit scores tend to jump after a cash-out refi, though credit card balances often creep back up within a year.
Get personalized, AI-powered answers built on 27+ years of trusted expertise.
If you’ve ever looked at your credit card statement and then at your home’s equity, you’ve probably wondered if a refinance could help you pay off your credit card debt. That’s what many homeowners are doing, according to a 2025 Consumer Financial Protection Bureau study.
But plenty of those borrowers end up right back in debt, now with a larger mortgage riding on their house.
How Cash-Out Refinancing Works For Debt
You get a new mortgage that’s larger than your existing one, take the difference in cash, and start making payments on the bigger loan. Most lenders cap the amount at 80% of your home’s appraised value.
With credit card rates averaging above 24% and 30-year fixed mortgage rates at 6.15% as of the end of 2025, per Freddie Mac’s Primary Mortgage Market Survey, the interest savings can be dramatic.
A January 2025 CFPB report by researchers Noah Cohen-Harding and Patrick Lapid found that “pay off other bills or debts” was the top reason borrowers gave for taking cash out. The same report showed that 57.2% of cash-out borrowers with credit card balances saw those balances drop by 10% or more right after refinancing, with average credit card debt falling by over $4,500 in the quarter after.
The Catch
The CFPB data showed that while balances stayed below pre-refi levels for about five quarters, they started rising again. You could end up carrying fresh card debt on top of a bigger mortgage.
When you fold credit card debt into your mortgage, you’re converting unsecured debt—where the worst outcome is a collections call—into debt secured by your house. Fall behind, and you could face foreclosure. More broadly, the Federal Reserve Bank of New York reported that 4.8% of all outstanding debt was in some stage of delinquency at the end of December, with mortgage delinquencies ticking up.
Interest on a cash-out refinance used to pay off credit cards is generally not tax-deductible. The IRS notes that mortgage interest is deductible only when the loan proceeds go toward buying, building or substantially improving your home.
When To Try Something Else
This strategy makes the most sense if your interest rate is well above today’s rates and you’re confident you can stop adding to your cards. If your rate is already below 5%, as it is for millions who locked in during the pandemic, you’d be giving up a cheap mortgage, which could cost more than the debt itself.
Before tapping equity, consider free nonprofit credit counselors through Department of Housing and Urban Development-approved agencies. They can help you build a debt-management plan that doesn’t put your home at risk.
The National Foundation for Credit Counseling reported that over 122,000 clients enrolled in debt-management plans in the most recent 12-month reporting period, and major creditors are now extending plan terms to 72 months—lowering monthly payments for borrowers who couldn’t manage shorter plans.
