Credit: Drazen Zigic via FreePik
What’s in your financial toolkit? There’s a good chance you have a checking and savings account with a bank or credit union. Like many other people, you might also hold a retirement fund, mortgage, and personal loans.
But what about a line of credit? Unlike other short term personal loans, you don’t have to use a line of credit right away. It can stay in your financial toolkit until you need it.
Here are some other benefits of having one at your disposal.
1. Security in an Emergency
If you’re stuck paying for an unexpected essential expense, you don’t always have the cash to pay it out-of-pocket. A personal line of credit is a backup in these situations. You can withdraw funds against this account, so you can take care of business without putting off something important.
So, if the car you need to get to work breaks down, you can get it fixed without worrying about missing work or pay. While car trouble is a common reason people have a line of credit, you can use it on almost anything.
Financial experts at MoneyKey recommend you reserve using your line of credit in emergencies. A line of credit through MoneyKey is designed specifically for these tough situations. It’s not meant to help you with everyday expenses or splurge items like a credit card.
2. Peace of Mind
Do you worry about the future and what it might bring for your budget? You wouldn’t be alone. Financial anxiety is on the rise, thanks to the lingering effects of the pandemic and inflation.
It’s easy to lose sleep by catastrophizing “what if” scenarios when inflation is eating up all your expendable cash. With most of your paycheck going to your immediate needs, you won’t have anything left over for the unexpected.
While you might not be able to avoid an unexpected expense in the future, you can sleep a lot better knowing you have an emergency line of credit, just in case.
3. The Minimum Payment
Unlike most short-term personal loans, an emergency line of credit comes with a minimum payment. It represents a percentage of your outstanding balance or a small flat fee. In either case, it’s less than what you owe in total.
By paying this minimum, you keep your account in good standing. This means you will avoid late fines and be able to access any remaining credit available.
Having this option can bring peace of mind when you run into bad luck. Let’s say you rely on your emergency line of credit to get your car back on the road. Then you need to see a doctor the next day, and the day after that, you need to call for a plumber.
If you can’t afford to pay all these charges off by the next billing date, you can rely on a minimum payment to keep your account in good standing until you have that money.
4. Debt Consolidation
Depending on your financial profile, some financial institutions offer personal lines of credit with very low interest rates. If this line of credit is lower than your other debt, you may consider moving outstanding credit balances to this account.
While this will not eliminate the debt you owe across other accounts, it will consolidate their payments into one account. You may pay a lower rate on this debt, and it simplifies your finances.
And there you have it — four solid benefits of a line of credit. Consider them carefully before you apply for one.