Published on May 29th, 2024
Once you set up a credit line, funds are always available at your fingertips and make your financial life easy.
From managing cash flow irregularities to funding planned expenses, a credit line serves multiple purposes.
Having access to a personal line of credit means no more worries about falling short of funds to cover your needs.
However, using a credit line also means you are borrowing money that must be repaid with interest.
If not managed responsibly, this convenience can have consequences such as accumulating high interest charges, damaging credit scores, and facing difficulties in obtaining future credit.
To prevent such outcomes, let’s learn more about credit lines and five ways to use them responsibly.
Understanding Credit Lines
A credit line is a type of revolving loan from a bank that allows you to borrow up to a pre-approved limit.
You have the freedom to withdraw funds multiple times as needed up to that given limit.
Moreover, you only pay interest on the amount you use, not the total credit available. Put simply, you borrow, pay back, and borrow again without having to reapply each time.
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Tips And Best Practices To Manage Your Personal Credit Line Responsibly
Here are some practical tips to use your credit line smartly so that it acts as a financial lifeline rather than becoming a debt trap.
Borrow A Realistic Amount
Just because you have access to a credit line loan doesn’t mean you should use it unnecessarily. Consider your income, expenses, ongoing debt, and savings to gauge your capacity to repay any new debt.
It is wise to borrow an amount that your current income can comfortably cover.
Then, plan your spending and establish clear limits to use your credit line. This strategy can help you save unnecessary interest payments as you are availing an amount that is absolutely required.
Never Exhaust Your Credit Limit
Aim to maintain a low credit utilisation ratio to show responsible credit usage and financial discipline.
This approach not only helps you maintain a healthy credit score but also ensures easier repayment. Moreover, by saving a portion of your credit line, you keep a safety net for emergencies.
You can consider INDIE’s MY Credit Line by IndusInd Bank to enjoy a high credit limit. Get access to up to ₹5 lakh anytime, anywhere and prevent the issue of high credit utilisation. All you have to do is:
- Download the INDIE app
- Open an INDIE Savings Account through your Aadhaar and PAN card details
- Select ‘Instant Line of Credit’ and complete VKYC (video KYC)
Use the credit line whenever you want and opt for repayment terms between 3 to 36 months, based on your repayment capabilities.
Repay On Time
Pay your dues on time to avoid late fees, higher interest rates, and a negative impact on your credit score. Consistent on-time payments demonstrate financial reliability and leave a positive impact on your credit history.
You can set reminders, automate payments, or organise a monthly budget to make sure you never miss a due date.
Note that a clean repayment history and strong credit score mean opportunities to secure favourable terms and lower interest rates in future credit or loan applications.
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Make A Strategic Repayment Plan
For managing balances on your credit line, first choose an appropriate repayment tenure. Now, create a repayment plan.
Your plan may include keeping aside a portion of your income, reducing non-essential expenses to increase your repayment capacity, using bonuses specifically for debt reduction, or other arrangements.
Maintain Self Discipline
Avoid relying on your personal credit line for daily expenses. It is advisable to use credit lines for emergencies, planned expenses, or to manage cash flow gaps.
Dependency on borrowed funds for regular spending can lead to a cycle of debt, as every borrowed rupee has to be repaid with interest.
So, view your credit line as a useful financial option for necessities and not a replacement for actual income.
Key Takeaways
A credit line loan can be a valuable borrowing option if you manage it responsibly.
It is about balancing the convenience of accessible funds with prudent financial habits.
Make sure to understand the terms, use credit lines for necessities, keep a budget, have a repayment plan, and maintain discipline in spending.
By following these practices, you can maximise the benefits offered by a credit line without falling into the pitfalls of debt.
Feature Image Source: Mark OFlynn
