Should You Refinance Your Home to Pay Off Debt? Here's What To Consider

A cash-out refinance can lower your interest payments, but it also puts your home on the line.

Published on Feb. 27, 2026

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A cash-out refinance allows homeowners to take out a new mortgage that is larger than their existing one, with the difference provided in cash that can be used to pay off credit card debt. While this can lower interest costs, it also turns unsecured debt into a loan backed by the home, meaning missed payments could lead to foreclosure. The article explores the pros and cons of using a cash-out refinance to pay off debt and provides alternative options to consider.

Why it matters

With credit card rates averaging over 24% and mortgage rates around 6%, a cash-out refinance can provide significant interest savings. However, this strategy also comes with risks, as it turns unsecured debt into a loan secured by the home. Homeowners need to carefully weigh the tradeoffs before deciding if a cash-out refinance is the right move for their financial situation.

The details

A cash-out refinance allows homeowners to take out a new mortgage that is larger than their existing one, with the difference provided in cash. Most lenders cap the amount at 80% of the home's appraised value. Data shows 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. However, the article notes that credit card balances often creep back up within about a year, meaning homeowners could end up carrying fresh card debt on top of a bigger mortgage.

  • As of the end of 2025, the average 30-year fixed mortgage rate was 6.15% according to Freddie Mac's Primary Mortgage Market Survey.
  • A January 2025 CFPB report found that "pay off other bills or debts" was the top reason borrowers gave for taking cash out.

The players

Noah Cohen-Harding

A researcher who co-authored a January 2025 CFPB report on cash-out refinancing.

Patrick Lapid

A researcher who co-authored a January 2025 CFPB report on cash-out refinancing.

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.

National Foundation for Credit Counseling

Reported that over 122,000 clients enrolled in debt-management plans in the most recent 12-month reporting period.

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What’s next

Before tapping home equity, the article recommends considering free nonprofit credit counseling through HUD-approved agencies to build a debt-management plan that doesn't put the home at risk.

The takeaway

While a cash-out refinance can provide significant interest savings by converting high-interest credit card debt into a lower-interest mortgage, it also comes with risks. Homeowners need to carefully weigh the tradeoffs and consider alternative options that don't put their home on the line.