Is a HELOC a Smart Borrowing Option?

Throughout your life, you’ll need money to pay for things like home improvements, medical bills or other unexpected expenses.

Some ways to get extra cash may include tapping the equity in your home via a home equity line of credit (HELOC), a personal loan, credit cards, or as a last resort, taking a loan or hardship withdrawal from an employer-sponsored retirement plan.

Here are some hypothetical examples of what it costs to borrow $20,000 using one of these options, and which one might be the wisest financial choice for your situation.1


A HELOC is similar to a home equity loan, which uses the value or equity in your home. However, instead of receiving a lump sum at closing, a HELOC provides a credit line that you can draw from whenever you need to, up to your credit line limit. This allows you to pay off what you’ve borrowed and have access to the funds again whenever you need it.

HELOCs offer competitive interest rates and the flexibility to pay what you borrow back—as long as 25 years if you need to.

What it Costs:

If you borrow $20,000 at an interest rate of 4.75 percent with the goal of paying the debt off over a 10-year period, your monthly payment would be $210. In this instance, financing this debt would cost $5,200 in interest, for a total of $25,200. If you choose this option, make sure you budget wisely and make on-time mortgage payments.

Credit Cards

The national average interest rate for credit cards is 15.59 percent according to If you don’t shop around for a low-interest credit card, you can pay a lot in interest if you’re not careful.

What it Costs:

If you borrow $20,000 at an interest rate of 15.59 percent with the goal of paying the debt off over a 10-year period, your monthly payment would be $330. That means you would pay $19,581 in interest, for a total of $39,610.  That’s a payback amount double the amount you borrowed.

Personal Loan

Personal loans offer the ability to borrow money without collateral—interest rates and loan amounts vary, depending on the financial institution. The loan payback period is generally limited to five years 

 What it Costs:

If you borrow $20,000 at an interest rate of 7.75 percent with the goal of paying the debt off over a five-year period, your monthly payment would be $403.  That means you would pay $4,190 in interest, for a total of $29,483.  A personal loan is a viable option if you can snag a competitive interest rate.

Retirement Plan

The terms for taking out a loan from an employer-sponsored retirement plan vary depending on the company. You don’t need a credit check, and you repay the loan with automatic deductions for a payback period of up to five years. A hardship withdrawal is different in that it allows you to withdraw money from your retirement account if you meet the IRS criteria for your situation being a true hardship. However, you will incur a 10 percent penalty for this withdrawal.

What it Costs:

Too much. According to the experts, this option should be only be considered as a last resort because building retirement savings is critical to creating a secure future. Also, keep in mind that if you leave your job, you’re required to pay back the outstanding loan balance within 60 days. If you don’t, you will pay taxes on the outstanding balance, including an early withdrawal penalty, if you’re not at least 59 ½ years old.

We’re here to help

Boost your knowledge about borrowing by visiting our Advice section. We offer a wide range of tools, blogs and workshops designed to help you make smart decisions about your money.

If you’re considering using your retirement account, our financial advisors can explore your options. Set up a complimentary consultation with a SchoolsFirst FCU financial advisor to help you make a plan.2



  1. The costs of loans mentioned above are hypothetical and aren’t representative of SchoolsFirst FCU products. Rates and terms for example may vary per financial institution. Each individual’s personal situation may differ as to which borrowing option is best for them, based on criteria such as creditworthiness, collateral and terms offered.

Please consult a qualified tax professional for tax advice on your specific situation.

SFFCU does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

  1. Securities sold, advisory services are offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with SchoolsFirst FCU to make securities available to Members. Not NCUA/NCUSIF/FDIC insured, may lose value, no financial institution guarantee. Not a deposit of any financial institution.CUNA Brokerage Services, Inc. is a registered broker/dealer in all fifty states of the United States of America.

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Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative, financial advisor, or BALANCE counselor who can help tailor a solution for you.

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