The Line of Credit vs. Credit Card Debate
With all of the credit products available, how do you know which one is the right one for you? Here are some points to consider on the line of credit vs credit card debate:
Some basic differences
A line of credit is generally harder to qualify for. This is mostly because line of credit limits tend to be higher than credit cards. A line of credit is often purpose-driven (i.e. a person takes out a line of credit to finance home renovations, repairs, education costs, etc.).
Although popular for personal use, lines of credit are often taken out by self-employed or small businesses as a means of cash flow, whereas credit cards are more common with individuals.
Lines of credit offer an alternative for use at merchants that don’t accept credit cards, but can be more difficult to access than credit cards.
If you are looking to benefit from reward programs, you’ll want to consider a credit card vs. a line of credit. Lines of credit don’t typically have rewards programs associated with them.
When you make a purchase on your credit card, you have 30 days before interest starts accruing. If you are able to pay your balance in full every month, in theory, you avoid interest charges. When you use a line of credit, interest charges are applied right away.
“Understanding how interest charges work is essential to helping you plan your purchases. Each dollar that you borrow has the potential to cost you more because of interest. On one hand, lines of credit can be more beneficial because they charge lower interest rates, yet you get charged right away. On the other hand, credit cards charge higher interest rates, but you have the chance to avoid interest charges altogether if you pay your balance in full during the grace period,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
While you are granted a 30 day interest free period with purchases on your credit card, that isn’t the case if you are taking out a cash advance, where interest is charged immediately. With your credit card, there is a limit on how much cash you are able to take out at one time and you will either pay a fee for the cash advance or a higher interest rate than a regular purchase (or sometimes both).
With a line of credit, there are no additional fees for cash advances and no limit either. You are allowed to draw down on the available balance on your credit limit.
Which is for me?
If you are able to pay your balance off every month and live a mostly cash-based lifestyle, a credit card may be more suitable for your needs, because of convenience, reward programs and the ability to avoid being charged interest.
A line of credit can be useful for bigger ticket items, because of lower interest and higher limits.
“However, the best way to approach big ticket purchases is to save the money up first and pay in cash, so you avoid interest and debt altogether,” says Schwartz.
Do your financial goals include paying down debt? Call one of our trained credit counsellors at or get started with our online debt analysis.