A line of credit is a personal loan extended to a person based on their credit score and income. These types of loans can be secured (collateral) or unsecured. Like any type of loan, it can come in handy or become a quagmire of debt depending on how it is used. It should be used either for emergency use only or as a type of investment tool. People often end up into trouble by forgetting three things:
1. The original plan: Most people get a loan for a specific purpose. Once they open the LOC, people tend to forget or alter their original plans.
2. The LOC is a loan: Over time, people can forget the LOC is a loan and not a source of income. They can come to rely on it to pay for their monthly expenses. The more the LOC is used, the higher the monthly payment. This tends to be a downward spiral, especially in combination with #3.
3. The LOC is limited: It is limited in funds that have to be paid back. Most people hit bottom.
If you are looking into opening a personal line of credit, think about the consequences, come up with a plan and stick to it.