Have you ever faced financial hardship? Are you looking for some financial help with lower interest rates? There are many options available from credit cards to payday loans. Unfortunately those options come with high prices and can keep you in debt for longer periods of time.

If you are looking for a smarter loan option, consider using a line of credit. This is a more budget-friendly answer to your financial problems. Most businesses have been using line of credits for many years to meet working capital needs.

What is a Line of Credit?

A Line of credit is a flexible way to borrow money from a bank. If you are self-employed with cash-flow problems, you want start a business, you want to consolidate some debt or you do not have enough resources for inventory, a line of credit may be the best option for you. It is one of the lesser known/ used options as the banks do not generally advertise lines of credits.

One difference between a line of credit and a traditional loan is that with a line of credit you only have to pay interest and fees on the portion of funds you borrow instead of on the entire loan amount like with a traditional loan. Another big difference with a line of credit is you only have to apply once for a specific credit limit that you can continue to access, use and payoff as much as and whenever you like, without penalty.

Secured or Unsecured

The big question secured or unsecured?  A secured line of credit means that it is secured against your home or property as collateral to assure your payment. With secured lines of credit you are able to get better financing rates as it minimizes the lender’s risks, although your risks can sometimes be greater as non-payment can sometimes result in you can losing your property. On the other hand, unsecured lines of credits are typically not provided unless you have a previous relationship with the bank or an excellent credit score. If you own a home and need money a secured line of credit is always the better way to go, as the rates are typically a lot less.

Use as Needed

The key benefit of a line of credit is that you borrow funds when you need it. It is especially helpful when a flexible budget is essential, for example things like home renovations and business expansions which can have less predictable and ongoing costs. On the other hand, people often become over-dependent on a line of credit and start using the funds for unnecessary, discretionary purchases which can quickly snowball and accumulate into a large amount of debt that needs to be paid back with interest. So it’s important to always have a plan in mind to payback the amount you will be using on the line of credit.

Make Extra Payments

Another way to successfully use a line of credit is to pay down your loan balance as soon as possible. You are charged interest based on your average balance every month. Some line of credits offer interest on the payments during the initial draw period. As a result, this keeps your monthly payments low.

In closing, a line of credit is a great way to get financial help, especially if it is a secured line of credit. If you own a home and need money, feel free to contact me today to discuss what options you have available to you.