Money is fungible. Whether you borrow $1,000 from your bank or a credit card or your brother in law, it entitles you to buy the same $1,000 worth of goods or services. So if it’s the same $1,000, don’t overpay for it. It’s not perfume, paying more for it doesn’t make it better. As of this writing, the average credit card has an interest rate of 17.8%. But that’s just the average, some credit cards charge much higher rates than that. The highest rate is 36%! Most states have usury laws that make it illegal to charge a very high rate of interest like this. But credit card companies are allowed to do it because the law allows them to set up shop in places with very anti-consumer laws, like South Dakota. When a South Dakota credit card company mails you a card in your state, the lending laws of South Dakota apply, not the laws of your state. So while your state’s usury laws may make it illegal for a local bank to charge you more than 20% interest, those rules don’t apply to out of state banks. You can thank Congress for that.
For small purchases like groceries and movie tickets, using your credit cards for convenience and paying the complete balance off at the end of the month is a good strategy. Sometimes, paying in full at the end of the month is not realistic. You may have a large expenditure like a medical bill that is unexpected. Before you incur larger charges that you won’t be able to pay in full at the end of the month consider a home equity line of credit (HELOC). A HELOC is like a credit card. The credit is available to you, but you don’t have to use it if you don’t want to. If you do spend from your HELOC, you will be charged interest, but it’s generally much lower than a credit card. As of this writing, the interest rates for someone with good credit are below 5%.
For something like remodeling your home, instead of a HELOC, use a home equity loan. A home equity loan is like your mortgage, it is a fixed amount of money for a fixed amount of time. It is generally a little cheaper than a HELOC. You get more flexibility with a HELOC, but you will save more money on interest payments with a home equity loan.