5 Simple Rules to Using an Online Line of Credit

A furnace that doesn’t want to heat up when the weather turns. A car that won’t start. A sudden trip to the emergency clinic. These represent only a few of the unexpected expenses that may upset your budget.

Sometimes, you’ll have more than enough cash on hand to cover these bills. But there may come a time when you need a little extra help. When you do, make sure to remember these five tips.

1. Consider it a Safety Net

When it comes to an online line of credit (LoC), you should only borrow what you need in special circumstances.

An online LoC acts as your financial backup when the going gets tough. Let’s say your tire blows on the side of the highway, and you don’t have enough savings to cover the cost of a tow truck and your auto repair. You may tap into your online line of credit to bridge the gap.

You’ll want to hold off using your LoC for non-emergencies. Focus instead on how you can tweak your budget to save up for fun splurges and expected expenses.

2. Comparison Shop

Once you know you’re borrowing for the right reasons, it’s time to shop around. An online line of credit simplifies this task since you won’t have to visit an in-person financial institution to get info on rates or terms. All you have to do is complete an Internet search to see what’s available.

If you have the time, open up several tabs and key through them to see how each LoC offer differs in real-time. Investing time at this stage can help you find the best possible rates for your credit score. You may even find a line of credit for people with bad credit.

3. Don’t Max out Your Limit

If you’re approved for an LoC, you’ll be given a limit. This represents the maximum amount of credit you can use at any given time. You won’t be able to access more until you repay what you’ve already taken out.

Hitting this limit isn’t a good idea for several reasons.

    • It’s costly. Interest and finance charges apply to the balance you carry over.
    • It’s risky. You’ll tie up your limit until you can make a payment, during which time you’re vulnerable to unexpected emergency expenses.
  • It’s damaging. Carrying over a balance affects your utilization ratio, a factor that impacts your credit history. Generally speaking, a ratio over 30 percent tends to mean bad news for your history.

4. Pay Your Bills on Time

Paying your bills on time is always a great idea. It keeps your account in good standing, which means you avoid racking up late fines and other penalties.

It also looks good to financial institutions. Positive payment history shows you take your LoC seriously, and you budget appropriately to ensure you hit each due date without fail.

5. Pay More Than the Minimum

Next to paying bills on time, paying as much of your balance as possible is one of the best things you can do with your LoC. Making a full payment frees up your credit limit for the next emergency, and it helps you manage interest and other finance charges that come with carrying over a balance.

Only use the minimum payment as a last resort in case something unexpected makes it hard to pay your full balance. Making this minimum will keep your account in good standing until you can cover more of your balance in the next billing cycle.

Remember these tips the next time you need a little extra help with an unexpected emergency bill. They’re great financial habits to start up on their own, but together, they form a responsible money management strategy to protect your finances.

Student Loan Relief during the COVID-19 Pandemic

The Memorandum on Student Loan Relief

Americans young and old alike have suffered economic stress in the wake of the COVID-19 pandemic. Even those who still have a job are feeling the tightening vice grip of bills and other monetary burdens. Thankfully, the federal government is offering some relief to its citizens under the CARES Act. In a memorandum released in March, the president announced the plan for student loan relief.

Trump’s Memorandum for Student Loan Relief

Earlier this year, President Trump declared the coronavirus pandemic a national emergency. The federal government then put together a contingency plan to relieve the immediate financial strain to those most severely impacted by COVID-19. It publicly recognized how the pandemic had disrupted the lives of Americans in significant ways. Additionally, it implemented policies to delay debt repayment until economic activities can resume as normal.

Therefore, on March 20, 2020 the federal government enacted a relief program to suspend loan payments. A crucial part of the plan was temporarily setting 0% interest rates on these loans. The goal of these measures was to help borrowers remain financially stable through these tough times. The memorandum issued to the Secretary of Education originally set the deferment for 60 days, due to expire on September 30. However, conditions have not improved. In fact, some economists argue that the economy is more unstable now.

Extension of Federal Student Loan Relief

Six months later, many still remain unemployed or find themselves working less hours for lower wages. Moreover, additional relief packages have been held up in Congress.  The worst of it is that no one can agree how to move forward as bills come due. In an attempt to bypass stalled negotiations and offer immediate financial relief, another executive order was signed to deal with the gridlock. This one simply extends the current policy until the country has become economically stable and schools have reopened. Therefore, student loan payments and interest rates have been waived through December 31, 2020.

Paying Down Your Principle on Loans vs Credit Cards

It is important to remember this is not debt forgiveness, only temporary relief. You must eventually pay off your what you have borrowed. Although payments have been deferred, you can still make loan payments and take advantage of the situation. If you have enough cash reserves, now is a good time to pay down the principles and avoid future interest payments. It can accelerate your repayment plan, and lower your balances. This means lower future interest rates when the extension expires, saving you even more in the long run.

However, survival is key through these economic hardships. If you don’t have an emergency fund in place, you should focus on creating your safety net while you are still employed. As a general standard, you should set aside 3 to 6 months’ worth of wages in case you lose your source of income.

If you find yourself in the unfortunate situation of paying off both student loan and credit card debt, it’s best to prioritize the debt with the high interest rates. I find myself firmly placed in this last boat. I am paying down the principle on credit card debt during this temporary reprieve. The hope is to focus on my short term goal of eliminating these higher interest debts while there is no interest accruing from student loans. Ultimately this will get me closer to the long term goal of becoming completely debt free.

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