A HELOC is a Home Equity Line of Credit. It’s a pretty straight forward financial product that you can get at a bank or other lending institution. A HELOC is also a little different than a Home Equity Loan.A Home Equity Loan is a loan that you take out that is secured by your home, more specifically, the equity in your home. Home equity loans are a very popular style of loan because the interest rate is typically low relative to other options.

A Home Equity Line of Credit differentiates itself because it is exactly what it says it is, a line of credit. This line of credit is also secured by the equity in your home, but you don’t have to pay any interest until you actually use it. Just as with a credit card, you only pay interest the balance used.

This is a huge advantage over a traditional loan because you may not be sure how much money you actually need. You also might not know exactly when you’ll need it.

I’m not advocating that you use a HELOC as a substitute for an emergency fund. There’s no substitute for cash on hand. I’m also not a fan of using borrowed funds for consumer goods, entertainment or home improvements.

A HELOC can, however, be used as a tool to consolidate higher interest debt or to finance a business or other real estate investment. Consider your options carefully, and continue to make wise financial decisions.