HELOC vs. credit card: Which should you choose?

Core Insights - The article discusses the differences between Home Equity Lines of Credit (HELOCs) and credit cards, emphasizing their respective advantages and disadvantages for consumers seeking to finance large purchases or manage emergency expenses. Group 1: HELOCs - HELOCs typically offer lower interest rates compared to credit cards, with the average HELOC rate around 8% versus an average credit card interest rate of 22.25% as of May 2025 [4] - Borrowing limits for HELOCs can be significantly higher, ranging from $10,000 to $500,000, depending on home equity, while credit card limits are usually capped at tens of thousands of dollars [10][23] - HELOCs require homeowners to have 15% to 20% equity in their home and involve a draw period of about 10 years followed by a repayment period of typically 20 years [8] Group 2: Credit Cards - Credit cards are generally unsecured, meaning they do not require collateral, thus reducing the risk of foreclosure compared to HELOCs [13][14] - Many credit cards offer 0% APR introductory periods, allowing consumers to transfer existing debt without interest for a limited time, which can be beneficial for debt management [15][16] - Credit cards provide immediate access to funds, with approval often granted within a few business days, unlike HELOCs which can take longer to process [20][21] Group 3: Tax Implications - Interest paid on HELOCs may be tax-deductible if the funds are used for home improvements, provided the taxpayer itemizes deductions [11] - The current rule allowing tax deductions for HELOC interest used for home improvements is set to expire after the 2025 tax year unless renewed [12] Group 4: Financial Flexibility - HELOCs can offer more financial flexibility with potentially lower interest rates and higher credit limits, but they come with the risk of losing one's home if payments are not made [13] - Credit cards can earn rewards on purchases, providing additional financial benefits that HELOCs do not typically offer [18][19] Group 5: Usage Considerations - HELOCs are often better suited for larger, planned expenses, while credit cards are more appropriate for smaller, immediate purchases that can be paid off in full each month [31] - The choice between a HELOC and a credit card should consider the amount needed, the urgency of access to funds, and the interest costs associated with each option [31][32]