It is not at all easy to manage your money for it is nothing less than passing through a maze with ins and outs you are not aware of. However, if you really wish to understand how to manage it without disturbing your brain, then there is one specific tool you can resort to. A credit line is what can help you steer through your financial worries and decisions. This line of credit is what you can rely on when you need money during special circumstances. You can think of it as someone you know who lends you money from time to time.
But there is a catch and this is knowing when to use it. Yes! It is important for you to know when to call on this line of credit. So, here we are with this brief guide on the personal line of credit. In the article, we would be understanding what is line of credit, when to use, and how it is different from credit cards and personal loans.
What is a Line of Credit?
Do you have any backup financial plan you can always rely on when you need unexpected expenses in your life? Well, if not, then this line of credit is what can bring wonders to your life. Imagine you are facing a temporary shortage of cash and you already have this personal line of credit for you to help you in such situations. In other words, it is like a flexible loan that a bank or a credit company pre-approved for you. The best part is that you do not have to use it the moment you avail it, instead whenever you extremely need it, like in cases of unexpected circumstances.
When you get a credit line, you would be given a maximum amount you can borrow. It is like having a spending limit on your financial card. However, the limit provided is based on factors like your credit history, income, and overall financial health. You can choose to use the credit line in full or only take what you need, and you will have to only pay interest on the amount you borrow.
When to Use a Line of Credit
Here are certain circumstances when you can opt to use a line of credit:
Emergency Expenses
Life can always surprise us, often with unexpected bills like sudden medical expenses or a car breakdown. This is where your credit line can help and protect you as a superhero. Using it during emergencies can certainly provide you with a quick solution without breaking your bank. However, you should also keep in mind that this personal line of credit is a short-term fix and hence, make sure to have a plan to repay it.
Cash Crunch
There may come times when your income is not aligning with your monthly expenses. Then a credit line can help you bridge the gap during these lean periods. When you have this financial bridge, then you would easily be able to cross from one payday to the next without struggling to make ends meet.
Opportunities for Growth
When youtube golden opportunities, you should always be prepared to grab them, and that’s what we have all learned in life, right? These opportunities could be a chance to upgrade your skills, start a small business, or invest in something promising. A credit line can be quite useful then and help you seize these opportunities, thereby, giving you the financial boost you need to grow and prosper.
Debt Consolidation
You can also use a personal line of credit if you find yourself juggling multiple high-interest debts. By consolidating your debts into a single and lower-interest credit line, you can simplify your repayments and definitely save a lot of money on interest. However, this approach requires discipline and commitment and hence, make sure you do not accumulate more debt over time.
Also Read: 4 Common Personal Line Mistakes And How to Avoid Them
How a Line of Credit is Different from Credit Cards and Personal Loans?
Credit Cards Vs Line of Credit
Credit lines are often associated with credit cards. However, they are not the same. While both of them provide you with a pre-approved borrowing limit, credit cards are a form of credit where you can carry a balance from month to month. Credit lines, on the other hand, may offer more flexibility and lower interest rates.
Personal Loans Vs Line of Credit
Personal loans are those where you get a lump sum of money upfront with fixed monthly payments over a certain term. On the contrary, a credit line offers you unlimited access to funds, and you only pay interest on the amount you borrow. So, if you wish to have this unlimited access to your funds, you should go with a personal line of credit.
Conclusion
Now that you have understood the fundamentals of a credit line, it is all up to you to decide whether you should sign up for it or not. Nevertheless, if you are looking for some great financial backup plan that can help you during unforeseen situations, then a personal line of credit can be beneficial to you in numerous ways.
