The short answer
Start by comparing the cost of carrying each balance, then compare the risk attached to each one. In most cases the balance that costs the most per dollar owed is the one to attack first with any extra money, while you keep paying at least the minimum on every other account. If you are trying to work out whether to pay off a line of credit or a credit card first, that comparison is the whole decision.
Two things can change the answer. If one of the debts is secured against something you own, falling behind has different consequences, and that can matter more than a difference in rate. And if you cannot cover the minimums on all of your accounts, which balance to pay off first is no longer the main question. There is a section near the end of this page for that situation.
How the two products differ in minimum payment and interest
A credit card and a line of credit are both revolving credit. You can borrow, repay, and borrow again up to a limit, provided the account stays in good standing. Beyond that, the mechanics differ in ways that affect how fast a balance actually falls.
Minimum payment. On a credit card, the minimum payment is set out in your cardholder agreement. It is commonly calculated as a percentage of the balance plus that period's interest and any fees, subject to a floor amount. On a line of credit, the minimum is set out in your credit agreement and is often structured differently. Some products ask for interest plus a portion of principal each period. Others, including many readvanceable products, ask for interest only, which means the principal can sit unpaid for as long as the account stays open and in good standing. Read your own agreement instead of assuming, because terms vary by product and by lender.
Interest. Both products normally calculate interest daily on the outstanding balance, so the size of the balance and the length of time it stays there drive the cost. The rate itself is set by your lender and stated in your agreement. A line of credit is often priced below an unsecured credit card, and a line of credit secured by your home is often priced below an unsecured line, because the lender has an asset behind it. That price gap is not by itself a reason to move a balance. Read the rate printed on each of your own statements first.
Legal ceiling. Section 347 of the Criminal Code sets the criminal rate of interest at 35% per year. That is a limit that applies to lenders. It is not a product feature you should expect to see on a statement.
Here is the comparison side by side.
| Feature | Credit card | Line of credit |
|---|---|---|
| Type of credit | Revolving; usually unsecured | Revolving; may be unsecured, or secured against property such as a home |
| Where the terms live | Cardholder agreement | Credit agreement |
| Minimum payment | Commonly a percentage of the balance plus interest and fees, with a floor set in the agreement | Often interest plus a portion of principal; on some products, interest only |
| How interest builds | Normally calculated daily on the balance | Normally calculated daily on the balance |
| Is the rate fixed | Set by the issuer; some cards have more than one rate that can apply | Often tied to the lender's prime rate, so it moves when that rate moves |
| Can the lender demand repayment | Governed by the agreement; the limit can usually be reduced or the account closed by the issuer on notice | Frequently demand credit; the agreement may allow the lender to require full repayment |
| If you fall behind | Fees and a higher rate may apply under the agreement, and the missed payment is reported to the credit bureaus | Default may trigger a demand for the full balance, and a secured line puts the asset at risk |
| What clearing it does to your file | Balance updates; history stays; closing it removes that available credit from your totals | Same, and closing a long-held line can reduce the average age of your accounts |
Which balance to attack first
Two approaches come up again and again, and both work.
Highest cost first. List every balance with its annual rate and its minimum payment. Send all extra money to the balance that charges the most, and pay only the minimums everywhere else. This costs you the least in interest over the life of the debt if you follow it through.
Smallest balance first. Clear the smallest balance completely, then roll what you were paying on it into the next smallest. This costs somewhat more in interest, and it gives you a finished account early, which some people need in order to keep going.
Neither is the wrong answer. The plan you actually follow for six months is better than the plan that looks better on paper and gets abandoned. Work through these steps before you commit to either one.
- Write down every debt: the balance, the annual rate, and the minimum payment on each.
- Mark which debts are secured against something you own and which are unsecured.
- Mark which debts have a fixed end date and which the lender can call for repayment.
- Add up your minimums and confirm you can cover all of them from your income. If you cannot, skip to the section below on your options.
- Direct your extra money to one target balance and keep paying at least the minimum on all the others.
- Recheck your list every few months. Rates on lines of credit can move when the lender's prime rate moves, and a line that was cheaper last year may not be cheaper now.
One practical check before you send extra money anywhere: confirm with your lender how extra payments are applied. In most cases an extra payment reduces the balance, and in some agreements payments are applied in a set order. Asking costs nothing.
Should I pay off a credit card with a line of credit?
Sometimes it makes sense and sometimes it moves the problem rather than solving it. Three questions decide it.
Is the line of credit secured? If your line of credit is secured by your home, moving an unsecured card balance onto it changes what happens if you cannot pay. The rate is often lower, and the lender's remedy changes from collections and a credit report entry to a claim against your property. At federally regulated lenders, a home equity line of credit is generally limited to 65% of appraised property value, with total secured lending usually capped at 80%. Whether you want your home standing behind a card balance is a personal decision, and for many people it is the most important part of the answer.
Will the card stay empty? If you clear the card and then run it back up, you now owe the line of credit and the card. Paying one debt with another only works if the borrowing pattern that created the balance changes at the same time.
What are the terms of the line? Check the rate that applies, whether it floats with the lender's prime rate, and whether the lender can demand repayment. A line of credit is often demand credit. If the rate floats, the cost of the debt can rise after you have moved it.
Promotional balance transfer offers work differently. Some cards offer a lower rate for a set period, with a standard rate afterwards, and the length of the period and any fee are set by the issuer in your agreement. What matters is the rate after the promotion ends and what happens if you miss a payment during it. The lowest rates are only available to the most qualified applicants.
What happens when you pay off a line of credit
Financially, three things happen. Interest stops building on the balance. Your minimum payment obligation drops to zero. The account usually stays open with its history intact, and the available credit usually stays available to you.
On your credit file, the account does not disappear. Your lender reports it to Equifax Canada and TransUnion Canada, the two national credit reporting bureaus, and the record stays on your report. Paying the balance off does not remove a late payment or a missed payment that was reported earlier. Reported entries age off on the bureaus' own schedules, and the Financial Consumer Agency of Canada, credit reports and scores explains what appears in a report and how scoring works.
If you close the account after paying it off, you lose the available credit it gave you. That matters if you were relying on the line as a buffer for irregular expenses, and it can also matter to your credit file, as the next section explains.
Does paying off a line of credit help your credit score?
Paying down a balance usually helps, for the same reason paying down a card usually helps. The amount you owe relative to your available credit is one of the factors used to calculate a score, so a smaller balance against the same limit is generally better than a larger one. Keeping balances low relative to your limits and making payments on time are the two habits that consistently matter most, as the Financial Consumer Agency of Canada, debt and borrowing explains.
Whether paying a line of credit off entirely helps is a different question, and it depends on what you do with the account afterwards. If you pay it off and keep it open, you keep the available credit and the account history. If you pay it off and close it, two things can work against you. You lose the available credit that was part of the calculation, and if the line was one of your older accounts, closing it can reduce the average age of the accounts on your file. That does not mean you should keep an account open forever. It means closing an account is a decision with a credit file consequence, and it is worth knowing before you make it.
A score is also only one part of a lending decision. Lenders look at income, employment history and total debt load as well. As one example, federally regulated mortgage lenders generally work to a total debt service ratio ceiling of about 44%, and qualify an uninsured mortgage at the greater of the contract rate plus 2 percentage points and 5.25%, under OSFI Guideline B-20. Carrying a large line of credit balance can affect those calculations even when the payment on it looks small.
When one balance is not the real problem
If you cannot cover the minimums on all of your accounts, choosing which one to pay first will not resolve the situation. What helps at that point is acting early and getting accurate information rather than borrowing more to cover the gap.
- Contact your lenders before you miss a payment. Many have hardship or payment arrangements, and the terms are set by the lender.
- Talk to a non-profit credit counselling service in your province. They can review your budget and explain your options.
- Understand the formal options. Only a licensed insolvency trustee can administer a consumer proposal or a bankruptcy. A consumer proposal stays on a credit report for 3 years after completion, or 6 years from filing, whichever comes first, and a first bankruptcy stays on a credit report for 6 years after discharge.
- Know where to complain. Complaints about federally regulated financial institutions go to the Financial Consumer Agency of Canada. Provinces license and supervise most other lenders, so the regulator and the rules differ depending on who you are dealing with.
- Be careful with short-term credit. A payday loan is generally up to $1,500 for a term of 62 days or less. Where a province operates a licensed payday lending regime, the federal Payday Lending Regulations (SOR/2024-114) cap the cost of borrowing at $14 per $100 advanced. Some provinces set a lower cap, and the lower cap applies. Quebec does not license payday lending, which effectively prohibits the model there.
Getting your own numbers
The Bank of Canada publishes the policy interest rate, the prime rate, conventional mortgage rates and Government of Canada benchmark bond yields. These are benchmarks, not offers, and no lender is obliged to lend at them. They are useful for understanding which direction rates are moving, not for predicting what you will be offered.
For anything significant, the right answer depends on your own circumstances: your income, your other debts, your province, and the terms of the agreements you have already signed. Regulated professional advice from a licensed insolvency trustee, a credit counsellor or a lawyer is worth getting before you make a decision that is hard to reverse, such as securing unsecured debt against your home.
loanmoose.ca is not a lender and does not make credit decisions. We do not set rates, approve applications or decide who qualifies. We are a matching and comparison service that helps you find licensed providers in Canada, and lending in Canada is licensed provincially, so the regulator and the rules differ depending on where you live.