3 Types of Revolving Lines of Credit and How They Work

LOS ANGELES, December 28, 2021 (Newswire.com) - iQuanti: Revolving credit is a common type of debt that can be useful for things like everyday expenses, home renovations, and a backup to an emergency fund. Some revolving credit options that may be available to you include personal lines of credit, home equity lines of credit (HELOCs), and credit cards. Let's dive deeper into how these forms of revolving lines of credit work and their benefits in more detail.

What is revolving credit?

Revolving credit is a type of debt you can use to borrow on-demand and pay back all at once or over time, as long as you make the minimum payment. With revolving credit, you'll only be charged interest on the amount you borrow. You'll have to pay interest if you carry a balance by not paying off the full amount you owe.

Personal lines of credit

A personal line of credit is a type of revolving credit that lets you borrow money up to a specified amount, then pay it back when you want to. You can take out as much or as little as you'd like, and you'll pay at least the minimum amount each billing period. 

Benefits of personal lines of credit

• Debt consolidation: You can easily use a personal line of credit to pay off numerous debts, consolidating them into one balance.
• Refinancing: If your credit line has a lower interest rate than the weighted average of debts you consolidate, you'll save money on interest.
• Secured or unsecured: You can choose whether you want a line of credit that requires collateral.

Home equity lines of credit (HELOCs)

A HELOC is essentially a personal line of credit that uses your home as collateral. That said, it offers some unique features and benefits.

Benefits of HELOCs

• Large amounts: Since you're using an asset with a large value as collateral, HELOCs can come in large loan amounts.
• Great rates: Securing your line of credit with your home allows you access to great rates.
• Tax benefits: If you use the HELOC to renovate your home, you may be able to deduct some of the HELOC interest on your taxes.

Credit cards

Credit cards let you borrow money by swiping your card or entering its number when making purchases. 

Every month, you'll get a statement containing your purchases. You must make at least the minimum payment on that statement. The credit card company then charges you interest on any unpaid balance and adds it to that balance.

Benefits of credit cards

• Cashback rewards: You can earn points for your purchases. Depending on the credit card, you may be able to earn higher rates in specific categories.
• Perks: Some cards offer extra perks. For example, travel cards help you earn miles toward free flights and hotel stays.
• Welcome bonuses: Credit cards may offer additional welcome rewards after spending a specific amount within a certain time period, such as 3 months, after opening the card.

The bottom line

All 3 forms of revolving credit offer flexible and convenient ways to borrow money. Personal lines of credit can be good tools if you don't want to use collateral, whereas HELOCs work well if you do. Meanwhile, credit cards let you pay for smaller, everyday expenses and earn cashback and other perks. Using some or all of these revolving lines of credit wisely can do wonders for your credit score and finances.

Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.

Source: iQuanti, Inc.