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

If you're juggling multiple payments or trying to get ahead, a personal line of credit may be worth exploring. It gives you access to flexible funds you can use to consolidate debt, leaving you with one manageable payment.

Here's what to know about how a line of credit works, why people use one for debt repayment, and what to consider before applying.

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 or fees on the amount you borrow, not the full credit line.

Some lines of credit use a fee-based structure instead of traditional interest. FlexFund from Advance America is one example. Available online in select states, it has two simple fees: a Statement Fee, charged each billing cycle that carries a balance, and an Advance Fee, a one-time 10% fee deducted when you request funds.

Reasons to use a line of credit to pay off debt 

Consolidate your debt 

A line of credit could be one of the most straightforward ways to pay off debt because you can use the amount borrowed from your credit line to pay off multiple debts. 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 could receive 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.

^{*Online approvals before 10:30 AM ET (M-F) are typically funded by 5 PM ET same-day. Approvals after 10:30 AM ET are typically funded next banking day.}

Borrow what you need up to your set limit 

A personal line of credit works differently than a type of loan that delivers a lump sum upfront. You have the flexibility to borrow what you need, when you need it — as long as you stay within your credit limit.

You may qualify without perfect credit 

Not every lender requires a strong credit score. Some lenders, including Advance America, consider factors like your income and employment history in addition to your credit score. Check your lender's specific requirements before applying.

RELATED: Line of Credit for Bad Credit

No need to reapply 

Once your line of credit is open, it stays open. You can access available funds again without starting the application process over. 

Things to consider before opening a personal line of credit 

Your credit score 

Some lenders, particularly banks and credit unions, may require a good credit score. Other lenders like Advance America consider factors beyond credit score, so you may still qualify even if your credit isn't perfect.

Costs 

Before using a line of credit to pay off debt, compare the cost of borrowing to the ongoing interest rates of your existing debts. In some cases, paying off multiple high-interest balances with a single line of credit makes sense. If your existing debts carry lower rates, it may be worth thinking through the math first.

Here are additional costs to consider: 

• Annual fee. Some lenders charge you a yearly fee to keep your line of credit open.
• Origination fee. A one-time processing fee, typically a percentage of your credit limit.
• Inactivity fee. If you go a long period without using your line of credit, some lenders may charge a fee to keep the account open.
• Late payment fee. Missing a payment — even a small one — may result in a late fee. 

Review the full terms and conditions before committing to any line of credit so you understand all potential costs. 

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 to open one is easy. 

1. Find a lender. Compare banks, credit unions, and online lenders to find one that fits your situation.
2. Apply in person or online. You'll provide personal and financial information, including your income.
3. Review the terms. Before accepting, read through the loan terms carefully — including interest rates and any fees.
4. Wait for a decision. The lender will review your application, considering factors like your credit history, income, and employment.
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. Repay what you borrow. Make your minimum monthly payment to keep your credit line open and in good standing. 

Consider a line of credit from Advance America today

Advance America offers personal lines of credit in select states. Whether you're looking to consolidate debt or cover an unexpected expense, we have options for borrowers across a range of credit scores. See if you qualify today.

Apply now