Many people have lines of credit, whether in the form of loans or credit cards. Many, however, fail to use such lines of credit wisely. But lines of credit can work to your advantage. In some circumstances, a line of credit is the only way to increase your net worth or get yourself out of risky situations.
Home Purchases
When purchasing a home, credit comes in the form of a mortgage. Not only does owning a home remove the obligation of paying rent, but it also gives you your own piece of collateral that can be used for future financial decisions. Owning a home also gives you personal benefits, as it is difficult calling rented accommodation your family's own. Furthermore, most people do not have the cash available for purchasing a home outright, and the money spent on rent may be used for a mortgage instead.
Emergencies
Credit also comes in handy during times of emergency. If you need to purchase a plane ticket on very short notice, you can use a credit card for the transaction. You can then pay off your purchase either when your next paycheck arrives or in manageable chunks. Having a credit card and paying it off diligently will also increase your credit score.
Auto Loans
Another form of positive credit is in the form of an auto loan. But, as with any loan, some auto loans have very high rates of interest for those with bad credit. Avoid such loans and consider saving for a cheap used car instead.
Investments and Business Ventures
Most investments use lines of credit for project financing. An example would be a real estate development project. In such projects, a selection of investors usually put up portions of the collateral, but the majority of the project is funded by construction loans. Such loans are designed to be paid back after the project is completed and the development is sold off. The project's revenue minus the construction costs results in the project's profit, which would not be realized without the use of a loan. Like investments, many businesses get off the ground with the use of a start-up loan. Such loans are only given to businesses deemed financially viable.
Student Loans
If you cannot afford the full tuition bill for four years of university, a student loan, backed by the federal government, may come to your aid. Such loans tend to have favorable lending terms such as low interest that is compounded on a simple, rather than compounded, basis. Repayment terms begin at 10 years and may be extended through consolidation. You can also use student loans to expand on your existing qualifications by pursuing graduate degrees.
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