Credit Card vs. Line of Credit: Which Is Cheaper to Carry Debt On?

If you’re carrying a balance on a credit card while also having access to a line of credit, you’re probably paying more interest than you need to. The math between the two is significant - and yet a lot of people keep their balance on the card without thinking through the comparison. Here’s the actual difference, when each one makes sense, and what to do if you have both.

The Core Rate Difference

Credit cards in Canada typically charge 19.99% APR on unpaid balances. Some cards charge 22.99% or higher. A small number of “low-rate” credit cards charge around 9.99%–12.99%, but they come with annual fees and fewer perks - and most people don’t have them.

Lines of credit (LOC) in Canada typically charge the Bank of Canada’s prime rate plus a lender-specific spread. When the prime rate is in the 4–6% range, most unsecured lines of credit land between 6% and 12% APR depending on your credit score and the lender. Secured lines of credit (like a HELOC) are lower still - often prime + 0.5% or less.

The practical gap: carrying $5,000 on a credit card at 19.99% costs approximately $83/month in interest. The same $5,000 on a line of credit at 9% costs about $38/month. That’s $45/month - or $540/year - in pure interest savings, without paying down a single dollar of principal.

When the Line of Credit Wins (Almost Always)

If you’re carrying any balance that will take more than one full billing cycle to pay off, a line of credit is almost always the cheaper option - assuming you qualify for one. The interest rate differential is rarely offset by any credit card benefit (points, cashback, insurance) when carrying a balance.

The clearest situations where you should move debt to a LOC:

• You have a balance that you’re making minimum payments on
• You’re paying 19.99% or higher on any amount above zero
• You’re not going to pay the full balance this month

The only exception is if you’re in a 0% promotional period on your credit card - in which case, the credit card may be cheaper for that window. But be clear-eyed about when the promotional rate expires.

When the Credit Card Is the Right Tool

Credit cards are not inherently expensive - they’re only expensive if you carry a balance. If you pay your full statement balance every month before the due date, you’re borrowing at 0% for up to 21–55 days (the grace period), and you’re collecting rewards on every purchase. That’s a genuinely good deal.

The credit card is the right tool when:

• You pay in full every month - no exceptions
• You want purchase protection, extended warranty, or travel insurance bundled in
• You’re buying something with dispute resolution protections (credit cards have much stronger protections than debit or bank transfers)
• You’re working on building your credit score (credit cards, used responsibly, build credit faster than lines of credit)

What If You Have Both Right Now?

The standard playbook: use your line of credit to pay off the credit card balance, then use the credit card for purchases you know you’ll pay off each month. You’ve shifted high-cost debt to low-cost debt, and you’re no longer accumulating interest at 19.99%.

But this only works if you stop adding to the credit card balance before you’ve cleared the equivalent from the LOC. A lot of people transfer their card balance to the LOC and then run the card back up - ending up with two balances instead of one.

If you’re disciplined: balance transfer → use card for ongoing spending → pay in full monthly → aggressively pay down LOC.

If you’re not confident about the discipline: focus on the LOC only, leave the credit card at home, and don’t use it until the LOC is clear.

Lines of Credit Have Their Own Risk

A line of credit is revolving debt - you can draw and repay repeatedly. That flexibility is useful, but it also means the balance can creep back up easily. Some people use the LOC and then refill it, paying interest indefinitely on a balance that never actually shrinks.

To avoid this: treat LOC repayments like a fixed monthly bill. Set a target paydown amount each month (not just the minimum) and treat it as non-negotiable. The interest payment alone on a LOC doesn’t reduce your balance.

Frequently Asked Questions

Does using a line of credit hurt my credit score?

Opening a new line of credit temporarily lowers your score slightly due to the hard inquiry, but using it responsibly (keeping the balance below your limit, making on-time payments) will generally help your score over time. High credit card utilization is one of the bigger factors in a poor credit score - transferring a credit card balance to a LOC can actually improve your score if it lowers your card utilization ratio.

Can I get a line of credit if I’m a student?

It depends on your bank and income situation. Major Canadian banks (TD, RBC, Scotiabank, CIBC, BMO) all offer student lines of credit, specifically designed for students enrolled in post-secondary education. These typically require enrollment verification and have lower rates than standard unsecured LOCs. Interest-only payments are usually required during school, with repayment beginning after graduation. If you’re enrolled, ask your bank about this product specifically - it’s often easier to qualify for than a standard LOC.

Is a home equity line of credit (HELOC) the cheapest option?

Yes - HELOCs are secured against your property, so rates are typically the lowest of any credit product. They’re generally only available to homeowners with sufficient equity. If you own a home with equity and have high-interest debt, a HELOC is often the most cost-effective way to consolidate. The risk: your home is collateral, so defaulting has serious consequences.

What’s the minimum payment on a line of credit vs. a credit card?

Credit cards require a minimum monthly payment that is typically the greater of $10 or 2–3% of the balance. Lines of credit often require only the interest portion - meaning if you make the minimum, your balance doesn’t decrease at all. This is an important psychological and mathematical difference. Minimum payments on a LOC can leave you paying interest indefinitely.

Should I close my credit card once I’ve paid it off?

Not necessarily. Closing a credit card reduces your total available credit, which increases your utilization ratio and can temporarily hurt your credit score. If the card has no annual fee, keeping it open (with a zero balance or small recurring charge you pay off) is often better for your credit profile than closing it.

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