A line of credit is a form of revolving credit similar to a credit card issued by a bank or other lending institution. The line of credit can be secured by an asset or unsecured. The secured line of credit will typically have a lower interest rate and a higher credit limit because they are considered lower risk for the lender.
Lines of credit will require you to pay a minimum monthly payment based on the balance that you have used. Sometimes you are only required to pay enough to cover the interest. As with any form of revolving credit, if you just pay the interest due or the minimum payment, the balance will not move. Depending on how you use your line of credit and especially if you start using it for everyday purchases such as groceries and gas, it will take no time to reach your maximum credit limit.
Here are a few tips to keep in mind when it comes to lines of credit.
- A line of credit is not disposable income.
- If you carry a balance, make more than the minimum payment due each month.
- If you are frequently using your line of credit because your cash flow is tied up making other bill payments, it may be time to look at your current financial situation.
- If you happen to max out your line of credit, there is a tool that is very effective in dealing with revolving credit. It’s called a credit card calculator. If you treat your line of credit as if it were a loan you can be very successful in paying it off. The most important thing to remember is to find a payment that suits your budget and will get the debt paid in a reasonable amount of time.
- Be Cautious. There is a new line of credit product being offered at payday loan establishments. This product is often promoted as a way to help people rebuild their credit rating. These specific lines of credit have very high fees and interest rates associated with them. Yes they do report to the credit reporting agencies, but rebuilding your credit rating this way may come at a very high price.
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