People generally think that debt is not good. However, it is not compulsory, as debt can be bad or good, depending on the way you use it. Different debts can dole out different types of purposes. There are many more types of debt that you know right now.
Of course, there are installment loans such as student loans, car loans, and mortgages that are used to get an education, purchase cars, and home. Then, there are other types of debts, such as revolving debt, like a home equity credit line or a credit card.
Although, revolving debts are more dangerous, they still can prove to be helpful in some surprising ways. Revolving debts are risky as they lack a fixed amount of payment and the amount of minimum payments is based on the amount of credit line you utilize. And, in spite of the fickle nature of this type of debt, it is still useful. Let us see how it is.
Available when you require it
You cannot predict life. Even if you are financially responsible with your money, you never know when you can get in trouble. You may not have sufficient amount of cash, when some unexpected incident crops up. It can also be that you may have the cash, but you do not want to exhaust your savings.
At such a time, revolving debt comes to your rescue. It allows you to pay off your purchases in due course, thus allowing you to keep more money with you. You can get revolving debt anytime, whenever you require it. This is why it is more convenient, as you can access it immediately when in need.
On the other hand, you cannot do so with other types of debts, like an installment loan. Although you can sign up for a loan for an unpredicted expense when you require money, you will not get it immediately. The application submission and getting loan approval will take atleast a few days. Moreover, it is not necessary that the bank will surely give you the amount that you need.
Revolving debt can help you build your creditworthiness. No matter, whether you want to rebuild your credit or start your credit history, you need to use credit in order to increase your credit score. There are various factors that can build your credit score, such as the kind of credit accounts you have.
Most of the people have only one kind of credit account, such as an installment loan like a car loan or mortgage. Although, paying off these accounts on time helps to build credit score, other credit account types are also essential to increase your creditworthiness and trustworthiness.
Credit mix nearly makes up 10% of the credit score. Therefore, it is worth to take a revolving debt in order to increase your credit score. Make sure that you manage your revolving account well, so that other lenders and creditors can notice it. This way they can count on you and in future you can easily and quickly qualify for other account types.
However, you must make timely bill payments and not utilize a lot of your available credit in order to make your revolving debt useful. Thus, not all types of debts are bad, including revolving debt. So, make the most of it by using it wisely.