October 18, 2010

Use Line of Credit to Avoid Paying High Interest on Debt

A Reasonable Interest Rate

A personal line of credit is an excellent way to avoid paying high interest on certain debts.

Interest payable on credit lines is reasonable. Even if it is higher than on a mortgage, it is much lower than, for example, credit cards.

On an As-Needed Basis

Because interest will only be charged if it is used, you can draw from your line of credit only if required.

This enables you to cope with small contingencies and make sure you pay the full balance of your credit cards each month.

Credit lines can also be used as a short-term loan to maximize your RRSP.

Relatively Easy to Obtain

If your financial institution did not already offer you one, it is relatively easy to apply for a line of credit. Depending on your credit rating, it can be expected to pay a few more percentage points than the prime rate, from 1% to 5% more.

Banks will usually lend you up to 80% of the equity of your house with their home equity line of credit products.

These days, it may be a little more complicated after the famous crisis and some change in regulations but you should still be able to get a line of credit.

Also remember that your credit score may be affected by applying for any line of credit.

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