You can use a HELOC for whatever you want, but some expenses are a better use of money than others.

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Whether you’re looking for a way to finance a major expense, to cover emergency expenses or just to make ends meet, you have plenty of options to choose from. Credit card And personal loan Common choices for many people, but they are not always the best.

If you’re a homeowner, tapping into your home equity can be a cost-effective way to cover expenses. Two common ways to do this are a Home equity loan or Home Equity Line of Credit (HELOC). Both options offer competitive interest rates. Currently, credit card interest rates are around 20%, and average personal loan rates range from around 8% to around 36%, depending on a variety of factors. In contrast, average home equity loan and HELOC rates are around 7.8% to 8%.

The nice thing about a HELOC is that you only have to pay back the amount you use. It works like a credit card: You are authorized for a fixed amount, and you can borrow funds up to the required amount within the draw period (usually, between two and 10 years). On the other hand, with a home equity loan, you get a lump sum and start paying it back immediately, whether you’ve used it yet or not.

As with credit cards and personal loans, how you use your HELOC funds is up to you. That said, there are some things you should keep in mind to use it as wisely as possible. In this article, we take a look at the best ways to put a HELOC to work for you.

Get started now by comparing your local HELOC options here!

What can you use a HELOC for?

There are no restrictions on what you can use a HELOC for. Common ways people use them are:

You don’t necessarily have to have a specific usage in mind when you apply for a HELOC. If you want, you can use it as a safety net. Since you have up to 10 years to borrow from your line of credit, you can keep it in reserve for unexpected expenses. You don’t pay anything until you get the money out.

You can shop for HELOCs online right now

Best Uses for a HELOC

While you can use a HELOC for just about anything, some expenses are a better use of money than others.

Home repairs and renovations

The benefits double if you use your HELOC funds to make improvements to your home First, you add value to your home, which can increase your profit when selling. second, You may be eligible for a tax deduction.

“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 “the loan must be secured by the taxpayer’s principal home or second home (qualified residence) and meet other requirements.”

“Generally, you can deduct the home mortgage interest and points you report on Form 1098 on Schedule A (Form 1040), line 8a,” the IRS says. “However, any interest shown in Box 1 of Form 1098 from a home equity loan, or a line of credit or credit card loan secured by property, is not deductible if the proceeds are not used to purchase, construct, or substantially improve. Qualifying home .”

You can use a HELOC for repairs and renovations:

  • Renovate a bathroom or kitchen
  • Construct an addition
  • A new roof is being installed
  • Upgrading electrical or HVAC systems
  • Landscaping is being updated

To find out if your home improvement plans qualify for deductions, talk to a tax professional in person or through A tax filing site.

Long-term, ongoing expenses

Because it’s an open-ended line of credit, a HELOC is best suited for long-term, ongoing expenses (think: college tuition instead of a one-time vacation). You can take what you need for a long time and you have to give back what you use. Every dollar you pay back is then available to use again.

Get started now by comparing your local HELOC options here!

Bottom line

Time to make a decision If you get a HELOC, make sure you’re not relying on it to finance a lifestyle beyond your means. If you’re tempted to use it for a vacation you couldn’t otherwise afford or for a wedding that’s more expensive than your budget, you could be in trouble. Yes, interest rates will be lower than credit cards and personal loans, but with a HELOC, your home serves as collateral. This means you risk losing your home if you can’t make the payments

To get the most bang for your buck, stick to expenses that have the potential to set you up for a better financial future, such as a college education, starting a business or buying an investment property. Home improvements are also a smart use of HELOC funds because they can increase the value of your home and qualify for tax deductions. As with any financial product, do your homework Find the best rate And consider your budget to get the right HELOC for you.

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