Have you ever heard of ‘revolving credit’? While the idea of having money “on hand” seems nice, it’s important to use a revolving credit facility the way it is intended.
Otherwise, it could end up costing you thousands in interest and leave you with a high level of debt. So here are three tips to help you decide if a revolving credit facility is right for you.
1. Do you manage credit cards well?
If you use your credit card to make the most of the interest-free period, and then pay off the balance when it is due, then you probably have the financial nous to use a revolving credit facility.
Revolving credit facilities work well when you can save on interest payable, by keeping additional funds in the account, ready for you to use when needed, but saving on interest while they are there.
2. Understanding the purpose of revolving credit
These facilities are generally best-suited to borrowers who progressively need the money (such as when building a house), or who receive “lump sums” of income, such as commission or bonuses.
Having a revolving credit facility means you only pay interest on what you use. By progressively drawing down payments when building, you won’t be paying interest on advanced, but unused funds.
If your main form of income is commission or you rely on bonuses, having a revolving credit facility can smooth out your cashflow, allowing you to use some of the facility when funds are tight.
3. Funds in the future
Maybe you have a big purchase planned and are saving money for it. Having a revolving credit facility in place means you can put all your savings into the revolving credit facility to save on interest, and then you don’t have to re-apply for a loan in the future – you just use the available credit on your account.
If you have a revolving credit facility or decide that one is right for you, don’t forget to review your facility regularly, and talk to us. We can help you work out whether it remains best-suited to your objectives.
By reviewing your mortgage frequently, you won’t get five years down the track and realise you have paid more in interest than you would have if you had a standard principal and interest repayment loan. We can also help you build a plan to pay off the mortgage faster.
Want to look at revolving credit, and review how your debt is working for you?
Get in touch and one of Cole Murray’s Mortgage Advisers or Financial Planning Advisers can help you review your needs and pave a way forward. We can help you work out what will best suit your needs and goals both now and in the future, as well as negotiate and coordinate any lending you may wish to apply for.
An Adviser Disclosure Statement is available free and upon request.