3 Tips to Follow Before Borrowing a Personal Line of Credit

Personal line of credit

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What is the purpose of a personal line of credit?

A personal line of credit, also known as a PLOC, is a defined amount of money from which you can borrow up to the maximum for a set length of time known as your draw period. Similar to a credit card, you only pay interest on the amount you withdraw from the available balance. You can borrow up to that maximum again once the money is repaid.

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A personal line of credit allows you to access your available balance of funds at any moment during the draw period, up to your predetermined maximum. You can withdraw funds as you need them throughout time. All money repaid during your draw time are added to your available balance.

You decide when to take advances with a personal line of credit. You will also have the option of simply paying interest on the amount drawn. A personal line of credit can help you whether you need to refinance qualified debt or need a large infusion of cash.

Pros and Cons of personal line of credits


  • Access to funds can be obtained in a variety of ways- With a personal line of credit, the borrower has access to the total loan limit throughout the draw period, which can last many years. This allows flexibility not just in how the funds are utilized, but also in when they are actually used.
  • Cash flow can be reused- Providing you follow the lender’s terms, once you’ve paid back the amount borrowed from a personal line of credit, the full amount becomes accessible to borrow again, within the original loan’s remaining duration.
  • Capability to combine and pay off high-interest debt strategically- A personal line of credit is an excellent approach to pay off higher-interest debt, such as a student loan or auto loan, because the funds can be used for a wide range of personal or household expenses.
  • Only pay interest on what you use- The benefit of a personal line of credit is that the borrower only pays interest on the money they actually utilize from the loan, rather than on the total loan amount available to them.


  • Could be tough to obtain- Because personal lines of credit are unsecured, most lenders require a good credit score to be approved. In general, the stronger your financial position, the better the terms you’ll qualify for.
  • Interest rates that could be quite high– Because personal lines of credit are normally unsecured loans, their interest rates may be higher than those of other similar products that do need security, and the interest rates are usually variable.
  • Extra charges- With a personal line of credit, lenders frequently impose annual or monthly maintenance fees, as well as additional potential expenses. 

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!