Financial Resource Center


Use Vehicle Equity to Pay Off Credit Card Debt

by Angelito Cristobal / February 8th, 2020

Do you owe a piece of the $420 Billion in U.S. credit card debt?  For many of us, making minimum payments on credit card debt can feel like taking an ice pick to an iceberg. Here's a solution that has worked for many people. Remember the age old game, "Would you rather?" Would you rather pay interest back at 5.99% or 16.99%? Typically, auto loans have a relatively lower interest rate than credit cards. Consider refinancing your existing auto loan and taking cash against the equity in your vehicle to pay off some of that high-rate debt.

Example: Let’s say you have an auto loan with a $10,000 balance, a rate of 5.99%, a monthly payment of $289, with about 39 months left on the term. Approximately $1,050 will be paid in interest for the remainder of your loan term.

If you have a credit card with a $2,000 balance and a rate of 16.99% and you are paying $50 a month, it will take you 60 months, yes, 5 years, to pay it off. You will also end up paying approximately $971 in interest. (

Refinancing your auto loan, and taking $2,000 cash-out to pay that credit card off would do the following: You would have a monthly payment of about $339 a month, which is $50 more than your original car payment. The total interest over the life of the loan would be $1,237, which is $187 more than the original loan. Why is this a good option, in fact, better option?

1. Monthly spend does not change. The original car payment plus credit card payment was $289 +$50 = $339. Your new car payment is $339.

2. Assuming you do no not extend the term, you will pay off the auto at the exact same time.

3. You will save $784 in total interest.

4. The $2,000 debt is now paid off in 39 months instead of the 60 months it would have originally taken you. That’s almost 2 years faster!

5. The credit card is now paid off – not spending on it once it’s paid off creates a larger available total balance which may improve your credit score.

Next steps and things to know:

1. Reach out to your Credit Union and see what options you have to refinance your auto.

2. You'll need to have positive equity in your vehicle, so if you've had it for at least three years, you're probably safe. Check the approximate value at


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