Can You Use a Line of Credit to Pay Off Debt?

Have you ever been stuck in a situation where you can’t seem to pay off your debt? Unexpected expenses can set you back quite a bit on your debt repayment plan, but a personal Line of Credit may be able to help! 

Using a Line of Credit to pay off your debt essentially offers you a new payment option so you can pay all or most of your debt off at once. Learning about how a Line of Credit works, the reasons to use one, and the things to consider before applying can help you decide if a Line of Credit is right for you. 

How a personal Line of Credit works 

A Line of Credit is a type of revolving credit, similar to a credit card. Once you’re approved, you can withdraw as much or as little money as you’d like up to your credit limit. Unlike other types of loans, you’ll only pay interest on the amount you borrow rather than the entire credit line. 

You can apply for a personal Line of Credit through traditional banks and credit unions, or online direct lenders like Advance America. 

Reasons to use a Line of Credit to pay off debt 

Consolidate your debt 

If you don’t have the funds needed, a Line of Credit could be one of the easiest ways to pay off a large amount of debt at once. You can use the amount borrowed from your credit line to pay off various debts, so you’re left with one monthly payment (your Line of Credit payment). 

This can relieve some financial stress, as keeping track of one payment is easier than keeping track of several. 

Get funds quickly 

Approval times are typically short. Depending on the lender you choose, you could get your funds the same day you apply. 

Just keep in mind that application approval and funding times vary, as every lender is different. If you need access to your Line of Credit right away, choose a lender with same-day funding. 

Borrow what you need up to your set limit 

A personal Line of Credit is different than other types of loans that provide you with a lump sum of cash upfront. You’ll have the flexibility to borrow the money you need when you need it, as long as you don’t go over your set credit limit. 

Qualify without good credit 

Not every lender requires you to have good credit, so if you don’t have the best credit score, don’t worry. You may be able to qualify for a Line of Credit without a good credit score. You’ll need to look at your specific lender’s requirements before submitting your application. 

No need to re-apply 

Once you open a Line of Credit, it stays open for you to access any available funds later. Whenever you need to withdraw more money, you can do so without the hassle of re-applying. 

Things to consider when using a personal Line of Credit 

Credit score 

Have you looked at your credit score recently? Is it good, bad, or fair? Some lenders, particularly banks and credit unions, might require a fair to good credit score. 

Online and direct lenders, such as Advance America, consider other factors beyond your credit score, so you could still get the money you need with poor credit. 

Interest rates 

If you’re thinking about using a Line of Credit to pay off debt, consider the loan’s interest rate and how it compares to your existing debt’s rates. In some cases, it makes sense to pay off multiple high-interest credit cards using funds from a single Line of Credit. But if your existing debts have lower interest rates than the loan you’re using to consolidate debt, you may want to think twice. 

Other fees 

Beyond interest rates, there may be other fees that you’ll need to consider. Some of these include: 

• Annual fee: Some lenders may charge you a yearly fee to keep your Line of Credit open.
• Origination fee: This is a one-time payment that covers the processing of your application. It’s usually a percentage of your credit limit from the lender.
• Inactivity fees: If you aren’t using your Line of Credit for long periods, your lender may charge an inactivity fee to keep the account open.
• Late payment fees: Monthly payments are required, just as they are with any other type of loan. If you’re late on your payments (even if they’re small), expect a late fee. 

Before committing to a Line of Credit — or any type of loan — review the terms and conditions to fully understand all potential fees and costs beyond the stated interest rate. 

How to get a Line of Credit to pay off debt 

If you’ve decided that you’d like to use a Line of Credit to pay off debt, the process is rather straightforward. 

1. Find a lender. Go to your bank or credit union or check out an online lender. Pick one that suits your situation best.
2. Apply in person or online. You’ll provide things like your personal and financial information (income and general financial situation).
3. Read the fine print. After you get accepted, it’s time to read the loan terms. Ensure everything makes sense and look at any interest rates and possible fees.
4. The lender will review your application. They may consider your credit history, employment, income, and other factors when making an approval decision.
5. Receive your funds. If the lender approves your application, they’ll decide your maximum credit limit and provide the funds from your initial draw. The money will usually be in the form of a check or an online bank transfer.
6. Use the funds. After you receive the money, you can spend it however you’d like. Some of the most common reasons to use a Line of Credit are for debt consolidation, medical bills, home improvements, and other big expenses.
7. Repay your loan. Remember to make your minimum monthly payment to keep your credit line open. 

Advance America offers personal Lines of Credit in select states, so you can get the funds you need to pay off debt. Best of all, you don’t need good credit to qualify! 

Apply now