When to use a line of credit—and when you shouldn’t

A line of credit sounds like a chill financial backup. The bank offers you a flexible borrowing limit, you tap into it when needed, and interest only kicks in on what you use. Feels low pressure, right? No dramatic loan approval process. No pile of forms. Just a line that’s open, waiting, and ready when things get tight.

But here’s what most people don’t tell you: that line of credit can either be your smoothest money move—or the start of a financial spiral that’s so quiet, you don’t realize you’re sinking until you’re deep in it.

You probably got the offer through your app. Maybe it came with your bank account. Maybe you clicked “Accept” because it said “pre-approved” and didn’t feel real. Maybe you haven’t touched it yet. Or maybe you’ve dipped in, repaid a little, dipped again, and now it’s just… there. Not urgent. Not gone. Just another number on your dashboard.

Let’s unpack what that number actually means, how a line of credit works, when it’s clutch, and when it’s just another way to stay broke while pretending you’re not.

First, the basics. A line of credit is a revolving credit product. Think of it like a cousin to your credit card—but with fewer perks, no cashback hype, and less marketing glam. You don’t borrow a lump sum upfront like a loan. You borrow in chunks, whenever you need, up to your approved limit. The interest rate is usually lower than a credit card, but not as low as a personal loan. And most of the time, it’s variable. Which means if interest rates climb, so does your cost of borrowing.

It’s like having a digital tab at your bank. One you can open and close over and over again. Which sounds good—until you realize tabs don’t close themselves.

Now here’s when a line of credit actually makes sense. If you’re self-employed or juggling gigs, your income probably swings a lot. You land a freelance project, you get paid. Then two weeks of quiet. Then another client hits you up. That feast-or-famine cycle is brutal on your cash flow. A line of credit can help even it out. You use it to cover essentials during low weeks, then repay once your invoice clears. It’s a short-term bridge—not a replacement for income. And that distinction matters.

Another smart play is when you’ve got a legit emergency. Say your car breaks down, or you have to fly home unexpectedly, or you get hit with a surprise dental bill. If your emergency fund isn’t built up yet, tapping your line of credit is way better than slapping it on a high-interest credit card. You don’t want to be stuck with 22% APR on a root canal. But again, it only works if you treat the line of credit like a loan. Use it, then repay it as quickly as possible—ideally within weeks, not months.

It can also be useful for one-off projects with unclear costs. Like if you’re launching a side hustle or doing a home repair. Instead of taking out a fixed personal loan and guessing the amount, a line of credit lets you draw as needed. It’s flexible funding when you don’t know what the final bill will be. That’s not a bad thing—if you’re disciplined about repayment.

And then there’s the classic timing mismatch. Maybe you know money is coming in—a bonus, a tax refund, a client payment—but you’ve got bills due now. A line of credit can carry you through that gap without forcing you to cash out investments, break fixed deposits, or juggle three credit cards just to pay rent. But again, the success of that move depends entirely on the money actually arriving. Hoped-for income doesn’t count. If the bonus is still a rumor or the invoice is “processing” forever, don’t borrow against it like it’s already in your account.

So yeah, lines of credit can be useful. But here’s where they get dangerous.

The number one red flag is when you start using your line of credit to pay for everyday stuff. Groceries, electricity, streaming services, rent. That’s not bridging a gap. That’s using borrowed money to fund your regular life—and that means your income isn’t covering your real lifestyle. And that, in plain terms, means you’re spending more than you make. If you keep pulling from the line every month just to stay afloat, you’re not managing money. You’re snowballing quiet debt with no exit strategy.

It gets trickier when you start consolidating other debts into your line of credit. On paper, this sounds smart. You’ve got three credit cards charging you 18% to 22% interest. Your line of credit offers a rate of 7% to 10%. So you move your card balances into it, breathe a sigh of relief, and feel like you’ve made progress. The interest is lower. The stress is lower. But if you don’t change the habits that got you into debt, the story repeats. You clear your cards, then rack them up again. Now you’ve got maxed-out credit cards and a used-up line of credit. You didn’t consolidate debt. You just moved it—and doubled it.

Another mistake is using a line of credit for big, long-term purchases. Some people use it for tuition. Others for weddings. Others for big-ticket electronics. The problem here isn’t the purchase itself. It’s that lines of credit aren’t structured for long-term repayment. You don’t get the forced monthly payment like you would with a loan. And without that structure, you could end up carrying that RM8,000 balance for two years while only making minimum payments. And those payments? Usually interest-only. Which means your debt isn’t shrinking. It’s just getting older and more expensive.

The interest rate trap is real, too. Most lines of credit have floating rates. So when the central bank hikes rates, so does your bank. Maybe when you first opened the credit line, the interest was 6.5%. But now it’s 9.25%—and rising. You don’t get an alert. You just notice your minimum payment going up. Quietly. And that’s when it hits you that your debt just got more expensive without you doing anything wrong.

At this point, a lot of people feel stuck. They’re using the line of credit like a buffer. Maybe they’re only paying the minimum. Maybe they’re still drawing from it every few weeks. And they think: “I’ll pay it down eventually. Things will stabilize.” But “eventually” isn’t a plan. It’s a delay.

So how do you fix it?

Start by freezing the line. That doesn’t mean closing it. It just means no new draws. Remove the temptation. Unlink it from your debit card. Log out of the app for a week if you have to. The first step is to stop adding fuel to the fire.

Then create a plan to pay it off—like an actual number, date, and monthly target. Not just “whenever I have extra.” Set a fixed amount you can commit to each month. Even RM300/month moves the needle. If the bank only asks for interest-only payments, ignore that. You’re in charge now.

Next, look at your budget. Is this debt sitting there because you’re under-earning? Over-spending? Both? You don’t need to cancel everything or live on beans and toast. But you do need clarity. Track your spending for a month. Just watch. Then adjust. Small cuts add up fast when they go to debt instead of stuff you won’t remember in three days.

If the balance feels overwhelming, call the bank. Seriously. Ask if they can convert your balance into a term loan. Some banks let you do this with better repayment terms, a fixed interest rate, and a clear end date. It won’t erase your debt—but it’ll give you structure, and structure is what most credit line users are missing.

And if your situation is bigger than one bank can fix—if you’re juggling multiple debts, late on bills, or avoiding looking at your account—talk to a credit counselor. Not some shady “debt relief” ad from YouTube. A real, licensed counselor who can walk you through your options. You don’t have to stay in financial fog.

What about avoiding the whole situation to begin with?

Here’s the quiet strategy most people don’t talk about: build a small emergency fund first. Even RM1,000 in cash can stop you from needing to borrow during minor crises. Think of it as a firewall. Then, for bigger purchases or longer-term needs, look at personal loans instead of open credit lines. Fixed payment. Fixed term. Less wiggle room, which is a good thing when you’re trying to keep yourself accountable.

And if you really do need flexible borrowing, set your own rules. Treat your line of credit like a loan. Every time you draw from it, set a date to repay it—and write it down. Pay more than the minimum. Even double. If you do that consistently, you’ll build trust with yourself. That’s how financial control actually grows.

So what’s the final word?

A line of credit isn’t evil. It’s not a trap. It’s a tool. But like any tool, it works best when used with purpose—not when waved around randomly. If you’ve got a plan, use it. If you don’t, pause. Because financial confidence isn’t about having access to money. It’s about knowing exactly why you’re using it, and how you’re getting back to zero.

Debt isn’t shameful. But letting it silently grow while you tell yourself it’s “under control” isn’t a vibe either. Get clear. Get honest. Get out.

And remember: the goal isn’t to avoid credit forever. The goal is to build a life where you don’t need it just to breathe.