Feb 17, 2023 / Credit
Revolving credit makes the financial world go ‘round. It can also help you keep your financial life in balance and prevent you from spinning circles as you try to recover from a family emergency or other unexpected expense. By giving you easy access to cash in an instant, you can pay for medical bills, car repairs, and more over time, without incurring excess debt and adding to your financial stress.
There are two basic types of credit—revolving credit and installment credit. Installment credit is a traditional one-time, lump sum loan that gets repaid over time. It’s usually accompanied by an application and may take some time to access your money.
Revolving credit, on the other hand, is always available. You choose when to make a purchase and how much of your available credit you want to use. When you repay your loan, your revolving credit is automatically renewed.
The two most common types of revolving credit are credit cards and home equity lines of credit (HELOCs). With both loan options, you have a credit limit—a maximum amount of funds you can use before you have to repay at least part of your loan.
As long as you repay your loan on time and stick to your payment schedule, you can enjoy ongoing (revolving) access to credit. While both credit cards and HELOCs are similar, a home equity line of credit usually comes with a lower interest rate because your loan is secured by your home, making the loan less risky for your lender.
Loss of income, a family emergency, an unexpected car or home repair—they’re all expensive, and they all have the potential to throw your personal and financial life out of balance. The revolving nature of revolving credit makes credit cards and HELOCs a good option to pay for these kinds of emergencies and unexpected expenses.
You don’t have to track down extra cash when push comes to shove or deplete your savings all at once. You don’t have to divert dollars from other budgeted categories to cover your bills. You can simply draw on your available funds to cover your costs and plan out your repayments over time. Simply having a funds available through a credit card or a HELOC—even if you don’t use them until you have an emergency—can be a literal financial lifesaver.
Revolving credit does indeed make the financial world go ‘round, but if you’re not careful, debt and financial stress can throw your life out of balance all by themselves. While using credit cards and HELOC loans as you go is good credit practice, maxing out your revolving credit on a regular basis can be a recipe for financial disaster—not to mention your funds may not be available when you need them most.
Financial experts agree that you should try to keep your total credit utilization to around 30% of your total available credit. In a simplified example, that means if you have $100,000 of total available credit across all your credit cards and lines of credit, you should try to keep your used funds at around $30,000 at any given time. That’s not to say you can’t exceed that mark on occasion. It just means you should work to pay down your debt and try stay close to that credit threshold.
Revolving credit can be an important safety net to catch you when you fall or help you get back on your feet following an unexpected event. With loan funds available at an instant, revolving credit is a great way to gain peace of mind and find balance in your life (and your budget) when life throws you for a loop.
To learn more about revolving credit and how Orange Platinum Visa or a Utah First HELOC can help you, visit our website or stop by a branch for more details.
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