Line of Credit: Your Lifeline During Financial Emergency
People may consider getting into debt for a reason; they may be put into a financial struggle due to sudden uncertainties. While others may be getting into debt due to their unwise spending, making them rely on debt at times of emergencies such as critical injuries, loss of employment, or unexpected events that require huge money.
While it’s highly advisable to build an emergency fund as a means to suffice any financial needs when these misfortunes occur, everyone may have difficulty to afford such. Though you can start building one easily for as long as you have the willingness, those who can’t afford may favor to setup up a line of credit.
What is a Line of Credit?
A line of credit is suitable if you’re currently facing a temporary financial challenge. For instance, if you badly need a car for efficient transport towards work, a line of credit can help you get a new one. It is a bank loan that is termed as temporary as it enables you to cushion short-term financial constraints.
However, not everyone is qualified for a line of credit. It is basically provided for those who have good credit scores and those with a satisfactory salary in a year. This means that the higher your credit score, the greater you’re approval limit will be. The same as with mortgages with variable rates, lines of credit interest rates are associated with the prime rate and a spread.
Utilizing a Line of Credit Prudently
The essence of getting a line of credit is simultaneous to the notion of how you should utilize your credit card. This means you’ll only consider it when you need it. If you’re getting lines of credit just for purchases that are beyond your means, you’re dragging yourself into a debt trap. Bear in mind that a line of credit is a good lifeline only during emergencies as it bears low-interest rates compared to your credit card interest charges.
Moreover, if you cannot lower your credit card interest rates, and is holding a balance, you can pay off your outstanding balance through a line of credit. The key is just to ensure that you can afford to pay your debt and check whether it’s allowing you to save more.
Secured over Unsecured Lines of Credit
Lines of Credit have two primary types. These are secure and unsecured. Secured lines of credit are protected by your valuable possessions or assets while unsecured is not. Most of the time, it’s best to consider a secured line of credit for you to save more in terms of interest payments.
Are Lines Of Credit Good?
Lines of credit come with lower interest rates compared to the sky-high interest charges that you’re paying on your credit card debt. Hence, it is unquestionably a favorable choice; it allows you have to have access to cash for a single purpose loan. Through lines of credit, you can borrow additions or increments then pay it, and you’ll be able to borrow again.
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|2||Credit card 1||$6,812|
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances.