What do you do if your family budget fails and you don’t have the cash you need? If you’re like a lot of people, you would get a personal line of credit.
Financial institutions like CreditFresh recommend using a personal line of credit for unexpected emergency expenses when your savings fall short of what you need.
This means a personal line of credit may be a backup when Fluffy the cat needs emergency care after swallowing a rubber band. But as for touring the world for sampling the best street food? Not so much.
Of course, you probably knew that already. For something you might not know, keep scrolling. Here are some tips to help you borrow better.
Check Your Consumer File
You’re due a free check each year from the major credit reporting agencies, Equifax, Experian, and TransUnion. Use them!
Many financial institutions set their rates according to credit rating. By keeping tabs on your report, you’ll know what your rating is. This helps you understand what borrowing options you have and may save you from wasting time applying for something you won’t qualify for.
Some extra perks include:
- Being better informed of the rates you’ll be able to access
- Knowing the financial products you can qualify for
- Recognizing the need to build positive history to improve your chances of getting better rates in the future
Recognize Good vs Bad Reasons to Borrow
While a personal line of credit may help in an unexpected emergency, it’s not a go-to backup in every financial scenario. There are good reasons to borrow money, and then there are bad reasons to borrow.
Generally, good reasons to borrow include:
- Covering an unexpected emergency auto repair
- Making an unexpected emergency household repair
- Paying for emergency medical bills and funeral costs
Meanwhile, bad reasons to borrow include:
- Taking on a vacation
- Going on a shopping spree
- Paying for expected bills and expenses
Budget So You’re Always Paying Bills on Time
Paying bills on time is a smart money move that saves you late fees. But it’s hard to hit due dates if you haven’t updated your spending plan.
Before you take out a loan, tweak your household budget. You need to know you’ll be able to make the expected payments against your balance. If you don’t have the cash to cover these scheduled bills, look to budgeting categories like food and entertainment to free up money.
If possible, keep cutting unnecessary expenses until you can make additional payments. Here are some benefits of making additional payments:
- Lowers your balance
- Frees up your available credit
- Reduces your interest charges
Sometimes, borrowing money is inevitable. If you find your family needs a little extra help in an unexpected emergency, don’t focus on your budget’s failure. Focus on what you can do to recover.
After following these tips to find and pay off the right product for you, spend some time tweaking your budget. Eliminate spending so you can put aside more money in emergency savings. A rainy day fund may help your family handle anything!