How to Use a Personal Line of Credit Responsibly

A personal line of credit can be one of the most flexible borrowing tools available—but that flexibility is exactly why it needs to be used carefully. Unlike a traditional personal loan, a line of credit allows you to borrow, repay, and borrow again up to an approved limit, paying interest only on the amount you actually use.

When managed well, a personal line of credit can help you handle unexpected expenses, smooth cash flow, or cover costs that happen over time. When mismanaged, it can contribute to ongoing debt that becomes difficult to reduce. This guide explains how to use a personal line of credit responsibly, when it may be suitable, when it may not be the right option, and how to avoid common mistakes Australian borrowers can make.

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Understanding how a personal line of credit works

A personal line of credit is a revolving credit facility approved up to a set limit. Once approved, you can access funds as needed rather than receiving a lump sum upfront.

Key features include:

• An approved borrowing limit (for example, $5,000 or $10,000)
• The ability to borrow, repay, and borrow again
• Interest charged only on the amount used
• Flexible repayment options
• Variable interest rates in most cases

If your balance is $0, you generally pay no interest. This makes a line of credit different from a traditional personal loan, where interest is charged on the full loan amount from day one.

To understand the basics in more detail, see What Is a Line of Credit?
https://www.credit24.com.au/blog/line-of-credit

How interest is calculated

Interest on a personal line of credit is usually calculated daily on the outstanding balance and charged monthly. Rates are often variable and may change over time depending on market conditions and Reserve Bank of Australia decisions.

Because rates can rise, responsible borrowing involves allowing room in your budget in case repayments increase. It can also help to regularly review your balance and repayment progress so you’re not relying on credit longer than intended.

How a personal line of credit differs from a personal loan

While both products allow you to borrow money, they serve different purposes.

A personal loan provides a lump sum with fixed repayments and a clear end date. A line of credit provides flexible access to funds over time.

Personal loans are generally better for:

• One-off expenses with a known cost
• Borrowers who want predictable repayments
• People who prefer structured debt reduction

Lines of credit are better for:

• Ongoing or uncertain expenses
• Cash flow management
• Emergency backup funding

For a deeper comparison, see Line of Credit vs Personal Loan
https://www.credit24.com.au/blog/line-of-credit-vs-personal-loans

How a personal line of credit differs from a credit card

Both credit cards and lines of credit are revolving credit products, but they are designed for different use cases.

Lines of credit typically offer:

• Lower interest rates than credit cards (in many cases)
• Higher borrowing limits
• No rewards programs
• Access via bank transfers rather than card payments

Credit cards are generally better for:

• Everyday spending
• Short-term borrowing paid off monthly
• Rewards and purchase protections

For many Australians, a line of credit may be more suitable for larger balances carried over time, while a credit card may suit smaller everyday spending—depending on how you manage repayments.

How to use a line of credit responsibly

Using a personal line of credit responsibly starts with mindset and discipline. Because the credit is reusable, it can feel like extra income rather than borrowed money. The following principles may help you stay in control and reduce the risk of long-term debt.

Only borrow what you actually need

Just because you’re approved for a certain limit doesn’t mean you should use it all. Responsible borrowing means drawing only the amount required for a specific purpose.

Borrowing less can reduce:

• Interest costs
• Repayment pressure
• The risk of long-term debt

Treat your credit limit as a maximum safety net, not a spending target.

Always have a clear purpose

Every draw from your line of credit should have a defined reason. More responsible uses may include emergencies, phased expenses, or short-term cash flow gaps. Higher-risk uses may include impulse spending or lifestyle upgrades you may struggle to repay.

If you can’t clearly explain why you’re borrowing and how you plan to repay it, it may be a sign you should reconsider using the credit line.

Create a repayment plan before borrowing

Responsible use means knowing how the debt will be repaid before you borrow a single dollar. This includes:

• How much you’ll repay each month
• How long repayment may take
• What income source will fund repayments

Without a plan, it can be easier to fall into the minimum-payment habit, where the balance reduces slowly or stays high over time.

Track every draw and repayment

Because a line of credit allows multiple withdrawals, tracking becomes essential. Keep a simple record of:

• Amount borrowed
• Date borrowed
• Purpose
• Repayment progress

Tracking can help prevent “credit creep,” where small draws add up to a large balance without you noticing.

Make regular repayments above the minimum

Minimum repayments often cover mostly interest. Paying only the minimum can mean the debt takes much longer to reduce.

Responsible repayment habits may include:

• Paying more than the minimum whenever possible
• Setting a target payoff timeline
• Treating the line of credit like a loan once funds are used

Even small extra repayments can reduce interest costs over time.

Avoid re-borrowing while repaying

One of the biggest mistakes borrowers make is repaying a balance and immediately borrowing again for non-essential expenses. This can create a cycle of revolving debt with no clear end.

A useful rule is to aim to repay your balance back to zero before using the line again, unless you genuinely need to draw funds for an important reason.

When to use a personal line of credit

A line of credit may be useful in situations where flexibility matters more than certainty, particularly if expenses occur gradually or unpredictably.

Managing ongoing or uncertain expenses

Some expenses don’t have a fixed final cost. Examples include:

• Home renovations with evolving scope
• Medical treatment plans
• Education costs spread across terms
• Business expenses for self-employed Australians

A line of credit allows you to borrow gradually, paying interest only on what you actually use rather than borrowing a lump sum upfront.

Emergency fund backup

A personal line of credit can complement—rather than replace—an emergency savings fund.

A common approach is:

• Build an emergency fund first
• Use savings as your primary safety net
• Use the line of credit only if costs exceed available savings

This approach may help reduce interest costs while still giving you access to extra funds if needed.

Bridging short-term cash flow gaps

Lines of credit may be useful for temporary timing mismatches, such as:

• Irregular income
• Waiting for client payments
• Large annual expenses
• Short periods between jobs

Responsible use involves ensuring the gap is temporary and having a realistic plan to repay the balance when income arrives.

Time-sensitive opportunities

In some situations, a line of credit may help cover a cost that needs to be paid quickly. If you consider using credit this way, it can help to have a clear repayment strategy and avoid relying on borrowing without a realistic exit plan.

When NOT to use a personal line of credit

Knowing when not to use a line of credit is just as important as knowing when it can be useful.

One-time large purchases

If you know the exact cost of an expense—such as a car, furniture, or a wedding—a personal loan may be more suitable. Loans can offer:

• Fixed repayments
• Predictable costs
• A clear end date

See What Is a Personal Loan?
https://www.credit24.com.au/blog/what-is-a-personal-loan

Lifestyle spending

Using a line of credit for discretionary spending like dining, shopping, or holidays can increase the risk of ongoing debt. These expenses don’t usually provide long-term value and may be easier to manage through budgeting and savings.

Long-term borrowing needs

Because interest rates are often variable, lines of credit can be less predictable for long-term borrowing. If you expect repayment to take years, a fixed-rate personal loan may provide more certainty depending on the product.

High-risk or speculative investments

Borrowing to invest in speculative assets can increase financial risk. If the investment performs poorly, you may still need to repay the debt and interest. Many borrowers prefer to avoid using credit for investments unless they fully understand the risks involved.

How to pay off a personal line of credit effectively

Paying off a line of credit responsibly often requires structure, even though the product itself is flexible.

Strategies that may help include:

• Setting a fixed monthly repayment amount
• Automating repayments
• Allocating windfalls (tax refunds, bonuses) to the balance
• Avoiding new draws until the balance is cleared

For budgeting help, use the Personal Loan Repayment Calculator
https://www.credit24.com.au/personal-loan-repayment-calculator/

Credit24 Line of Credit: Flexible and responsible lending

A line of credit can be a useful tool when used with a clear plan, realistic budgeting, and disciplined repayments. It may suit customers who want flexible access to funds for approved purposes while only paying interest on what they use.

Key features include:

• Borrow only what you need, from $500 to $10,000
• No application fees
• No monthly account-keeping fees
• No withdrawal fees
• Interest charged only on the amount used
• Fast access to funds via OSKO-enabled banks
• Flexible repayment terms up to 36 months
• No early repayment penalties

Credit24 conducts responsible lending assessments as part of the application process, which is designed to help determine whether a customer may be able to afford the credit being applied for.

Apply now

Frequently asked questions

How do you use a line of credit responsibly?

You can use a line of credit responsibly by borrowing only what you need, having a clear repayment plan before drawing funds, and paying more than the minimum each month where possible. Many borrowers also find it helpful to track spending and avoid re-borrowing until the balance is repaid.

What can a line of credit be used for?

A line of credit may be used for emergencies, ongoing or uncertain expenses, short-term cash flow gaps, or time-sensitive costs. It is generally most suitable when flexibility is important and you have a realistic plan to repay what you borrow.

When should you use a line of credit?

You may consider a line of credit when expenses are uncertain, income is irregular, or you want a backup option alongside emergency savings. It is generally better suited to short- to medium-term needs rather than long-term borrowing.

How do you pay off a line of credit?

You can pay off a line of credit by setting a consistent repayment schedule, paying above the minimum where possible, and avoiding additional borrowing while repaying. Some people also use lump sums such as bonuses or tax refunds to reduce the balance faster.

What’s the difference between a line of credit and a personal loan?

A personal loan provides a lump sum with fixed repayments and a set end date. A line of credit offers flexible access to funds, reusable credit, and repayments that may vary depending on how much you borrow. Loans may suit known costs, while lines of credit may suit uncertain or ongoing expenses.

Is it better to have a line of credit or a personal loan?

Neither is universally better. A line of credit may suit borrowers who need flexibility, while a personal loan may suit borrowers who want fixed repayments and a clear end date. The right choice depends on your financial situation, spending needs, and repayment preferences.

Disclaimer

IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839.

The information in this article is general in nature and does not consider your objectives, financial situation, or needs. Lending criteria, fees, and charges apply. For product details, eligibility requirements, and full terms and conditions, visit www.credit24.com.au.