Credit card debt is what we call unsecured debt. That means that the only “security” the bank has for you to pay it back is the piece of paper that is the Credit Card Agreement. It’s not directly secured by your home or other assets. Of course, if the credit card company gets a judgment against you, in theory, it could pursue your other assets, but that is a different topic.
Because credit card debt is unsecured, it’s considered pretty low on the hierarchy of debt. At or near the top would be student loans (which are extremely difficult to get out of), then your home loan debt, which is secured by your house, then other debts where you pledged collateral like a car loan, etc. But near the bottom is unsecured credit card debt.
Of course, credit card companies know this, which is why they charge 20% or more interest – to make up for this fact. Given the relatively low stature of credit card debt, you generally want to avoid using loan proceeds from a secured loan to pay off credit card debt.
The classic example we’ve seen is when someone takes student loan money to pay down a credit card. Or, uses refinanced equity from a home or car loan to pay credit card debt. While there may be rare circumstances where this makes sense, in general, you should avoid it.
Don’t Convert Unsecured Debt into Secured Debt!
Think about it this way. Why would you take what would otherwise be unsecured debt and turn it into secured debt? It only makes your debt problems that much more serious. Now instead of a low-level credit card debt that could perhaps be settled or discharged in bankruptcy if necessary, you have to deal with a secured debt that could follow you for decades and jeopardize your assets.
So before you use other debt to pay credit card debt, you should consult a debt attorney for a holistic look at your situation and what would be best.