Can a line of credit help you manage debt better?

Wouldn’t it be nice to have some flexibility in borrowing money?

That credit card pressure of paying nearly 20% on outstanding balances can be overwhelming. There has to be a way to manage credit better without having to deal with the pressures of accumulating backbreaking debt.

Or what about student debt? Not everyone can qualify for OSAP but tuition and in some cases paying for residence as well can add up, especially if you pursue higher education beyond a university or college degree and so having an option that addresses that is crucial.

Then there’s major adulting costs like home renovations or other upgrades or other major surprise costs that can come up and you need a flexibility. Different types of lines of credit can help you address each of those concerns (yes, there are business lines of credit as well but this is all about personal financing).

Personal Line of Credit

A personal line of credit takes some work. You’ve got to be able to build up your credit to a point where you actually qualify for a line of credit. It’s the next step after you’ve put in the work with a credit card.

From time to time after you’ve build up enough good credit history, your bank may even have pre-approved offers for you to avail of. These only require a soft check of your credit history as opposed to doing a full application and are definitely worth considering depending on the interest rate on offer (bank’s prime rate plus X%) and the amount (usually minimum $5,000).

Pre-approved offers mean you’ve done well to manage your credit and you have an opportunity, if you’d like, to get yourself set for a rainy day. Remember, you only pay on the amount you borrow so it really can just sit there waiting for you. The worst thing is to not have credit available when you most need it.

Note: A personal line of credit can have a co-signor if you really need one but whoever is co-signing must be absolutely certain in knowing that they are just as accountable for the debt being taken on as primary applicant and so should always be wary of the worst case scenario.

Student Line of Credit

If you’re pursuing a post-secondary education or beyond you’re choosing to invest in future you at a cost for present you. If you’ve made this decision straight out of high school, odds are you don’t have enough of a credit history and it’s okay to ask for help. You’re just going to need it from the people who you trust and who trust you the most.

Most student lines of credit are co-signed by parents or guardians, and the approval will depend on their credit circumstances. Student lines of credit are often, but not always, cheaper than a regular line of credit because of the added accountability in repaying the debt, and it can be a major source of relief as you obtain your education.

Home Equity Line of Credit (HELOC)

This can be a tremendous resource once you’ve built up enough equity in your home and you do this by having paid off a decent chunk of your mortgage. Say, for example, you put a 20% down payment on your home but over years of regular mortgage payments you’ve now paid off an additional 30% of the amount you owed (50% in total), you could theoretically apply to have that 30% you paid off accessible via a HELOC. Note that you can’t have access to the full 50% because you must maintain a minimum level of equity in the property.

The great thing about a HELOC is you’re going to be able to borrow large amounts at virtually the same rate as whatever the current mortgage rates are. Want to renovate the kitchen or the basement? Have an unexpected cost come up that requires major work to fix? This is a great option that offers flexibility in paying it back over an extended period.