Home equity lines of credit, or HELOCs, are really handy credit funds that you can use for large repairs and other major expenses that can't wait but that are also too big for your savings to handle. However, they can also be a source of trouble if you don't handle them carefully. They're very much like a credit card with an amazingly large balance, so when is it a good time to open one up to have in case of emergency?

Overall Financial Stability

Keep in mind one very important distinction between a HELOC and a credit card: You don't risk losing your house over a delinquent credit card payment. A HELOC, though, is secured by your house, putting your shelter in jeopardy. You must be able to make those payments if you borrow money from the HELOC, so your overall financial situation has to be fairly stable. If you think your job is in jeopardy, if you know of some medical treatments coming up that could affect your ability to work for a while, or if something else makes you less confident about your income in the future, a HELOC might be a questionable choice.

The Zero-Balance Line

Now, assuming your financial situation really is stable, and you're not concerned about your ability to pay off any loans from the HELOC, there are some advantages to having a HELOC with a zero balance. When you apply for a HELOC and are approved, you don't have to immediately withdraw money. You can have this nice, zero-balance (and thus no interest out of your pocket) account waiting for you to make a move. You'll have already gone through the approval process, so if you need to make an emergency home repair, you won't have to wait for the bank to review your application. That is a major advantage to using a HELOC because you can let it sit if it's zero balance.

On the flip side, sort of, is the annual fee. It's very common to find a HELOC that requires a fee yearly, often in the two-digits. If you're OK spending that to keep the line open, that's no problem. But if you don't want to lose those fees, the in-reserve HELOC becomes less of a good idea.

Long-Term Plans

One other difference between a HELOC and a credit card is that HELOCs have to be zeroed out and closed before you can sell your house. If you plan to sell and move soon, and you were thinking of the HELOC to make some upgrades before selling, that's not the best idea. But if you want to make some upgrades and keep the house for a few years, giving you time to pay off the loan, then it could work out well.

If a HELOC doesn't sound like the right financial move for you, you can also look at traditional home equity loans. These are better obtained when you actually do need the money because they have a finite time limit for payoff after the loan is issued (in other words, you can't let them sit indefinitely with no financial loss). Speak with a representative at a home loan company to learn more.