A HELOC is 3 times better than a credit card

There are signs though Inflation cools down and a recession While the table may be off, many Americans still struggle with high prices and low purchasing power. with interest rate They’ve been around for years and with impending relief more than an uncertain prospect, consumers should do their due diligence before applying for a new form of credit. With so many options available and different rates, it pays to understand when one might be better than another.

Homeowners have more options than other borrowers, thankfully equity They are frozen in their house. Using a Home equity loan or Home Equity Line of Credit (HELOC), they can pay for big expenses or emergencies, like credit cards or personal loans. HELOCs, in particular, work similarly to credit cards in that they offer borrowers a revolving line of credit to pay as they see fit. In fact, there are some situations where it’s better to use a HELOC than a credit card.

Start by exploring your HELOC options here now to see how much you can borrow

A HELOC is 3 times better than a credit card

Here are three situations when a borrower may be better served using a HELOC instead of credit card.

When you want a lower interest rate

If you are a borrower with good or excellent credit, you will likely qualify for a lower interest rate. But the lowest rates usually come with a HELOC, not a credit card.

Credit card interest rates currently hover around the 20% mark, making borrowing with this type of credit prohibitive if you don’t want to repay the amount you borrow immediately. Meanwhile, HELOC interest rates Around 8% to 10% depending on your credit history and the lender you use.

when Rates on HELOCs While they’ve increased in recent months, they’re still significantly less than what you can expect to get with a credit card. This difference will add up quickly, especially if you plan to borrow frequently over an extended period of time.

Check out HELOC rates here now to see what you qualify for

When you need it to repair the house

This is arguably the best reason to use a home equity loan or a HELOC Tax deductions. In particular, if you use a HELOC to make IRS-qualified home repairs or renovations, you can deduct the interest paid on it during the tax year in question.

“Home equity loan interest and lines of credit are deductible only when the borrowed funds are used to purchase, construct, or substantially improve the taxpayer’s home that secures the loan.” The IRS Explains online. “The loan must be secured by the taxpayer’s principal home or second home (qualified residence) and meet other requirements.”

Since you can’t deduct credit card interest from your taxes, it’s usually best to use a HELOC when it’s time to fix up your home.

When you need a large quantity

Anyone with a credit card already knows the limits most issuers allow. Depending on the credit card company and your financial situation, you may only be approved to borrow a few thousand dollars. HELOCs, however, can allow you to borrow hundreds of thousands of dollars (if not hundreds). In fact, most lenders let you use Up to 85% of your home equity During your application.

If you have $200,000 of equity in your home, for example, you could potentially withdraw $170,000. Compare that to the top credit limit on one of your credit cards, and it becomes clear that HELOCs are preferable when you need a large amount of money.

Bottom line

Everyone’s financial situation and goals are different. What is convenient for one borrower may not be convenient for another and vice versa. However, there are certain times when homeowners may be better served with a HELOC instead of applying for a credit card.

When you want to pay a lower interest rate, for example, a HELOC may be a good choice. Likewise, when you know you’ll use it for home repairs and renovations, a HELOC is preferable for its favorable interest tax deduction at the end of the year. Finally, when you need a large amount of money (think several thousand dollars or more), a HELOC may be a better route than dealing with the limited credit lines many credit card issuers offer.

Learn more here now.