Carrying a credit card balance? A line of credit could be a better option for you

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Credit cards may be one of the most popular ways to make a purchase, but a line of credit could help you save money on interest and make it easier to handle your payments.

Credit cards can be appealing for many reasons. They can be simple to get, they’re easy to use, and often have attractive incentives associated with them, like collecting travel points or cashback rewards. However, many credit cards have annual fees that sneak up on consumers, along with high interest rates that can quickly add up if you keep a sizable credit card balance month after month.

While credit cards were designed to make purchases, they aren’t always your best option. Setting up a personal (secured or unsecured) line of credit gives you access to a pool of money whenever you need it and can help you save in the long term.

Why use a line of credit instead of a credit card?

While credit cards can be a great payment option for everyday purchases, a line of credit can help you cover unexpected expenses, emergency repairs or temporarily fill cash flow gaps. Here are some benefits to using a line of credit instead of a credit card:

• Interest rates are lower than many retail credit cards, and you pay interest only on the amount you borrow.
• Can help you avoid costs, such as credit card transaction fees or overdraft fees in your chequing account.
• Useful in situations where it will take longer than a month to pay back a large purchase.

Interest adds up — save yourself some money

Let’s say you experience an unexpected expense. Your car breaks down and needs some repairs, with the total coming to $5,000.

You don’t have the money for these repairs right now, so you decide to pay using a credit card at a 28 per cent interest rate. If it took you one year to pay the bill, it would cost $482.53 a month, and the total interest paid in the year would be $790.36.

However, if you used the funds from a line of credit at a 7.5 per cent interest rate, it would cost you $433.79 a month, and total interest paid in the year would be $205.44.

That’s a savings of $584.92 using a line of credit instead of a credit card.

The power of one payment

If you’re making purchases using a few different credit cards, you may find yourself struggling to keep up with the various payments. If it’s becoming difficult to keep track of how much you need to pay and when, you’re likely going to be incurring late fees and more debt as time goes on.

This is where you may want to consider “consolidating” your debt, which just means taking your debt balances and putting them together under a single payment, such as a personal line of credit. This way, you’re turning a handful of credit card bills into just one payment per month. Paying off your credit cards becomes much easier to monitor and manage.

To help you stay on top of your finances, consider using CIBC Online Banking®, which provides you with options such as a consolidated view of your investments and your loans. You can review your balances, make additional payments (sometimes even using reward points) and view your payment history whenever it’s convenient for you.

How do you use your line of credit?

Pay for purchases using your line of credit by simply transferring the funds from your line of credit account into your chequing account, by using either online or telephone banking. You’ll be able to access those funds instantly in your chequing account to pay your bills or withdraw the cash to make a purchase.

If you’re interested in discussing how a line of credit can help you achieve your goals, book a meeting with an advisor to explore your options and build a personalized plan.

Advertising feature provided by CIBC. The Globe and Mail’s editorial department was not involved.