3 Tips for Using Your Line of Credit Wisely

Let’s face it, as much as you’re told you have to banish debt from your life — right now — sometimes you need it. Borrowing money is one of the only ways most of us get to buy a home or go to school.

Or, for the 27 percent of Americans who have zero savings, it may be the only way they can handle an unexpected emergency expense.

In emergencies, you may be able to get money fast from CreditFresh and put your unexpected expense on an online line of credit.

If you end up needing to put something on your online line of credit (or LoC), you want to make sure you’re using it wisely.

So let’s break it down. If you have no choice but to use an LoC, here are three tips to help you use it well.

1. Use it on Emergencies Only

An LoC may be a temptation to overspend. But here’s something that may help you rein in your spendthrift ways. Remember that you’ve promised to pay back what you use, plus interest and financing fees.

If you splurge at every opportunity, you might use more than you can realistically pay back.

Your LoC is designed to help you take on unexpected emergency expenses you can’t tackle on your own. It’s not an excuse to go shopping, take a vacation, or renovate your kitchen.

2. Keep an Eye on Your Utilization Ratio

Your utilization ratio shows how much of your limit you use, expressed as a percentage. So, for example, if your LoC is worth $1,000 and you used $200 of it, your ratio would be 20%.

This is a pretty good ratio to have. Typically, you want to keep it lower than 30% at any given time, but the lower, the better.

A low ratio reflects well on your financial situation. It suggests you don’t rely on credit often. Regularly carrying a high ratio, on the other hand, may suggest to future financial institutions you need this account to make ends meet.

3. Pay More When You Can

When it comes to paying your LoC, it’s a lot like a credit card. You’ll receive a billing statement that shows the cost of your purchases once interest and finances charges are applied.

It may also show a minimum payment, which can either be a small flat fee or a percentage of your total owing. In either case, making the minimum payment will cost less than paying off your entire bill.

Using the minimum payment on a regular basis promises short-term gains and long-term pain. While it may provide temporary relief in a tight month, relying on it often may mean you will:

• Accrue more interest
• Raise your utilization ratio
• Have less of your limit available in another emergency

Keep at it!

Living debt-free doesn’t happen overnight. For some people, it may be a life-long journey. It might even mean taking out another LoC somewhere along the way.

If that’s the case for you, make sure you use it wisely. How you use an LoC now may help you pay it off later.