HELOC vs. Credit Card: The Best Option for Large and Small Expenses

If you need to borrow money and you’re trying to decide between a HELOC vs. a credit card, you should consider several points. For example, a HELOC is best for large expenses you might need to finance over a period of time—home renovations, for example. A credit card, especially one with an introductory 0% rate, is better for smaller, one-time purchases.

Keep reading; we’ll explain how these financial products work and their main differences to help you identify which is best for your financial needs.

Table of Contents

1. How does a HELOC vs. a credit card work?
2. Pros and cons of a HELOC
3. Pros and cons of a credit card
4. When should you use a HELOC over a credit card?
5. When should you use a credit card over a HELOC?

How does a HELOC vs. a credit card work?

Consumers who take out home equity lines of credit (HELOCs) are on the rise. Federal Reserve data from the third quarter of 2024 showed HELOC balances increased by $7 billion since last quarter, marking the 10th increase in a row by quarter. 

HELOCs are similar to credit cards in that you can use them as needed during your initial draw period—often 10 years. The equity you have in your home secures a home equity line of credit, so HELOCs often have more competitive interest rates than credit cards, and you can take out larger balances.

Most HELOCs have variable rates, and borrowers make interest-only payments during the draw period, which can last two to 20 years. After that, you enter the repayment period, making monthly payments to pay down the principal. During repayment, you can no longer draw from your line of credit.

Credit cards

A credit card is also a line of credit, but unlike a HELOC, it is unsecured. With a credit card, you can make purchases up to a set limit. Credit cards typically have much higher interest rates than HELOCs. As of August 2024, the average credit card interest rate is over 21%, according to data published by the Federal Reserve Bank. 

If you pay off your credit card balance at the end of each month, you will not incur interest charges. With a HELOC, you pay your interest upfront during the draw period.

How does a HELOC vs. 0% interest credit card work?

A 0% credit card is a credit card that offers an introductory 0% interest rate for a specific period, anywhere from a few months to 21 months. Consumers may use 0% cards to make a purchase they want to finance over time or to make a balance transfer to help pay off high-interest debt faster.

After the 0% promotional period ends, your credit card interest rate will jump, typically to over 20%, whereas HELOCs had an average rate of 8.70% in November 2024. A 0% credit card is most advantageous if you’re confident you can pay your balance in full before the 0% interest promotion ends.

Pros and cons of a HELOC

Here are the pros and cons of choosing a HELOC over a credit card.

Pros

• Low interest rates

  HELOCS tend to have lower interest rates on average than credit cards.

• High borrowing limits

  Depending on the amount of equity in your home and the lender you choose, you might be able to borrow more than you can with credit cards.

• Tax benefits

  If you meet certain qualifications, the IRS will allow you to deduct HELOC interest costs on your taxes.

• Use funds for anything

  You can use your HELOC for anything, from medical bills to college expenses and beyond.

• Low initial payments

  Your payments during the initial draw period are usually interest-only, meaning your payments for the first few years can be more manageable than credit card payments.

Cons

• Secured loan

  Because the collateral for a HELOC is the equity in your home, lenders can foreclose on your home if you cannot make payments.

• Long approval process

  Getting approved for a HELOC is a multistep process that can take several weeks, which is a negative if you need to access cash right away.

Pros and cons of a credit card

Here are the pros and cons of choosing a credit card over a HELOC.

Pros

• Unsecured loan

  If you don’t make your credit card payments on time, it will hurt your credit score. However, your assets are not at risk since your debt is not tied to collateral.

• Fast approval

  Depending on your credit history, you can get approved for a credit card in as little as a few minutes, and you’ll get a physical card in the mail in a few days.

• Several 0% offers

  Many credit cards have 0% promotional offers for up to 21 months. If you can pay off your balance before the 0% promotion ends, you can make a purchase and pay it off over time without paying interest.

Cons

• High interest rates

  Most credit card interest rates are above 20%, and promotional offers on 0% credit cards eventually end.

• No tax benefits

  You can’t deduct the interest you pay on your taxes.

When should you use a HELOC over a credit card?

Here are situations when you should use a HELOC, not a credit card:

• Large home renovations
• Debt consolidation
• Long-term expenses

Large home renovations

Data from Harvard University projects homeowners will spend $477 billion on home improvements and maintenance through the third quarter of 2025. If you are among the homeowners who want to complete a large home upgrade—remodel your kitchen or update several bathrooms—a HELOC offers more flexibility and lower interest rates than a credit card. 

With a HELOC, you typically make interest-only payments first, which can be easier to manage with a large-scale purchase. And if your renovations meet specific requirements, it’s possible you can write off your interest payments on your taxes. Speak to a tax professional before hiring a contractor for your renovation to see whether this is an option. 

Debt consolidation

If you have high-interest debt, such as credit card debt or private student loans, HELOCs can be a solid option to streamline your debt and lower the amount of interest you pay over time. For example, if you have three credit cards with high balances, consolidating them into one HELOC can simplify the repayment process and save you significant money on interest.

Long-term expenses

If you want to pay for something over the long term, such as a home addition that might require payment in installments, a HELOC is a better option. Because credit card interest rates can jump to a high rate once a promotional period ends, you risk getting deep into debt at a high rate, which makes it harder to pay off.

With a HELOC, you can make payments over a long period, including starting with interest-only payments during the draw period. This can give you a runway to make purchases or upgrades at a lower interest rate.

When should you use a credit card over a HELOC?

Here are situations when a credit card might be a better option than a HELOC:

• Short-term borrowing
• Small expenses
• Daily purchases 

Short-term borrowing

A credit card might be better if you plan to make a purchase you’ll pay off in full when your bill is due. If you secure a 0% interest rate for a certain period and you can pay off your balance before the promotional period ends, a credit card could be a more affordable option.

Unexpected small expenses

Credit cards can make sense for unexpected smaller expenses, such as replacing a washing machine or paying for car repairs. These are purchases you can ideally pay off in a few weeks—and they don’t require days or weeks of applying for a HELOC.

Daily purchases 

In general, credit cards are better for daily purchases. They’re convenient, and most stores accept them. Plus, having one can help you build credit if you make your payments on time and pay your balance in full each month.

HELOC vs. credit card recap

Here’s a recap of everything you need to know about a HELOC vs. a credit card so you can make the best decision for your situation.

Detail	HELOC	Credit card
Rates	Variable, average 8.70%*	Variable, average 24%*, temporary 0% promotional rate available on some cards
Amounts	Depends on home equity and other factors, but can be up to $2 million	Depends on creditworthiness, income, and other factors. Some cards offer a $100,000 limit or more for qualified customers, but most have limits in the thousands
Repayment terms	Two phases: a draw period where you make interest-only payments (two to 20 years) and a repayment period (five to 30 years)	Requires monthly payments in full to avoid interest costs
Best for	Large home renovations, debt consolidation, long-term expenses	Short-term borrowing, small expenses, building credit, daily purchases