I’m 71 years old and have a painful $75,000 in credit card debt. Should I take a chunk of my nest egg or use my home equity to pay for it?

Credit card debt can be crippling – especially with the average interest rate of 21.76%.

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So what happens if you’re retired and saddled with $75,000 in credit card debt? You may find it tempting to dip into your retirement nest egg or take out a home equity line of credit (HELOC) to help you draw it down — but there are significant downsides to both approaches.

If you find yourself in a similar situation, there are some pros and cons to consider first.

Hacking into your retirement fund can cause problems

Using your retirement savings may seem like a quick fix to your credit card problems.

However, your nest egg is a vital financial lifeline that will help you live out your golden years. After all, Social Security benefits alone won’t be enough to live on.

On average, Social Security benefits replace about 40% of your annual pre-retirement income. It is intended to reinforce existing savings and pensions – not to be the only source of income.

In fact, some financial experts advise withdrawing just 4% of your account balance during the first year of retirement and then adjusting the dollar amount for inflation in subsequent years. This will help your savings last. But if you withdraw $75,000 from your account at once, you’ll crack this useful retirement hack.

Not only will you lose the $75,000 you invested, but you will also lose all the potential gains the money could have generated for you during retirement.

You’ll also likely have to reduce your annual income by about $3,000 (based on 4% of $75,000) for the rest of retirement if you reduce your savings to pay off debt. You also run the risk of running out of money while still relying on savings.

Arguably, the advantage is that you would avoid credit card interest with this approach and not have to commit to another monthly payment plan that you would have to deal with for years to come.

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Getting a HELOC is also not ideal

Borrowing against the equity in your home may seem like a good option, as the interest rate is usually well below what you’d pay with a credit card.

National average home loan rates were around 8.36% as of October 15, 2024, which is significantly cheaper than credit card interest.

Plus, if you have multiple credit cards, using one loan to pay them all off can simplify things for you.

However, there are some major disadvantages. On the one hand, loans for purchasing home ownership have high closing costs, which vary between 2% and 5% of the total loan. If you don’t have that money, you’ll need to borrow it.

You also need to have equity in your home, which means the property must be worth more than you currently owe if you still have a mortgage.

Most lenders won’t give you a loan for more than 80% to 90% of your home’s value (minus what you owe), so you’d have to be sure you could actually borrow $75,000.

You would also likely be left with high monthly payments. Let’s say you borrowed $77,250 to pay off your credit cards and cover the 3% closing costs of your home equity loan at an average rate of 8.37%. If you took out a 10-year loan, for example, your monthly payments would be $952.43 per month. That’s a significant amount of money.

The biggest problem, however, is that you are putting your home at risk. Your lender can foreclose if you don’t pay. Are you sure you could afford $952 a month until, say, age 81?

If you have exhausted your equity, you will not be able to sell unless you can earn enough to pay off the new loan; therefore, if you are unable to make payments, you have few options.

What should you do instead?

If you find yourself in this situation, neither option may be the right approach. Instead, you should consider talking to your creditors about a payment plan or even consider filing for bankruptcy.

Both your primary home and retirement savings are typically protected, so creditors can’t go after you for much unless you have a lot of other assets.

If you’re 71, for example, having great credit may not matter much at this stage in life; So while your score will be affected, it may not be as bad as ending up with no retirement funds or a home.

If you to do If you have other assets, of course, then these options may not work – but a personal loan may be the best way to consolidate your credit cards, as the rates aren’t much higher than home equity loans. Rates are lower and your home is not used as collateral.

Ultimately, you’ll need to consider the details of your financial situation—but don’t be too quick to commit your most important retirement assets out of an understandable desire to permanently pay off your credit card debt.

If you’re still unsure, consider talking to a trusted financial advisor to help you come up with a plan for dealing with this debt.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.