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Line of Credit
We recently applied for a Line of Credit from a local lender. After a look at our credit history, and after providing proof of employment, driver's license information and identification we were approved. We decided to take out this Line of Credit as a buffer for emergency situations and to pay off a couple of bills that were getting into the red zone. We recently shuffled around our work situations and the bit of down time between jobs quickly caught up with us. So, to buy a bit of leeway and breathing space, we decided to get a Line of Credit.
The interest rate on our Line of Credit is pretty ridiculous. Similar to the insane charges on a credit card. However, we intend to pay off the balance almost immediately since the monthly credit charge is only about 2.5%. It just doesn't make sense to carry a balance for any length of time.
It's nice to have the buffer of a Line of Credit. This way we know that if anything dire came up, like an emergency car repair, we always have money handy in a crisis. Of course, the biggest danger is temptation. During the long winter months, a nice vacation to some hot travel destination definitely sounds enticing. How easy it would be to throw caution to the wind and run up that Line of Credit in the blink of an eye!!
So too, we have small children. Kids always need something. They're always growing out of their clothing and shoes or else there's some great toy or sports equipment that they simply must have, and before you know it you've blown a couple of hundred bucks! It would be very nice to go on a shopping spree as well - things that are all accessible, but not recommended, with a Line of Credit.
Having a Line of Credit is great in a pinch, and as long as it's managed well, is a great asset to have at your disposal. It gives some peace of mind, can bail you out when you get in a corner, and comes in handy if you know when you can pay it back. Leaving a large balance owing, for an extended period of time, can result in horrendous interest charges, so paying the balance down right away is always your best bet.
Also, if you have an excellent credit rating, then you can get better terms on your Line of Credit. However, it's just as likely, that you're getting the Line of Credit to get you out of a slightly tight situation, in which case, your interest rate is probably a lot higher and carrying a significant balance for an extended period is not desirable.
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