Do you ever get the feeling you’ll never save enough, no matter how many pennies you pinch? There’s always another emergency demanding your time, energy, and money. And sooner or later, your emergency fund will fall short.
When that time comes, it’s natural to turn to an unsecured line of credit (or LoC) for help. But before you do that, make sure you check out this guide first. It’s here to help you make the right choices, so you end up using your LoC responsibly.
Double Check Your Motive
Why are you taking out an LoC? Is it because your air conditioner broke down unexpectedly during a heatwave, or is it because you want to take a vacation to escape the oppressive heat?
There’s a big difference between these two scenarios. One of these demonstrates a true need for credit, while the other represents a want you can delay until you can save up some money.
Be honest with yourself: is it really an emergency or is it something you can delay? An LoC is best used in an emergency when you can’t afford an unexpected yet unavoidable expense on your own.
Compare Your Options
When facing down surprise medical bills or an unexpected repair, you’re desperate to get the cash you need. Emergencies give you tunnel vision — all you can focus on is how you’ll pay what you owe.
This might convince you to take the very first loan you find, simply because it gives you the means to pay your bills as soon as possible. But by cutting your search short, you could miss out on an option that fits your finances better — from different rates, terms, and even convenience.
There are some financial institutions like CreditFresh that carry out most of the lending process online, cutting out the need to visit a brick-and-mortar location during business hours.
Going online for your LoC makes it easier, faster, and more convenient to request help, but otherwise, it provides the same safety net. To see how an online unsecured line of credit compares, start by visiting Creditfresh.com before researching other options.
Make sure to read the terms and conditions carefully before you sign anything, so you understand your responsibilities as a borrower.
Automate Your Payments
Spending money is easy. Paying it all back can be a challenge. You’re a busy person, and the days just seem to slip by. If you aren’t careful, you’ll miss an important due date and accrue interest and/or late fees.
But that’s not the only consequence of missing a payment. If your financial institution reports your payments to one of the three major credit agencies, you may also impact your credit history.
Automating your payments so you never miss a due date is an easy way to avoid these damages and charges.
Pay More Than the Minimum Payment
The minimum payment — either a percentage of your balance or a flat fee — is a convenient alternative to paying your full bill. It takes some of the pressure off your finances during a tight month. By paying it, you escape late fees, but it frees up more cash to put towards other emergencies.
But it’s not a sustainable method of payment. Interest accrues on the balance you carry over from month to month, which means you’ll end up paying more than you borrowed.
A good rule of thumb is to strive for paying off your full balance each month, relying on the minimum payment only during tough times.
When the financial going gets tough, it’s natural to rely on an unsecured line of credit for help. But make sure you reach for the right loan for the right reason. Shop around and remember to pay as much as you can on the due date. These tips will help you manage your LoC responsibly the next time you have to tap into it.