The Advantages of Revolving Debt

by Cynthia Measom
A home equity line of credit is a type of revolving credit.

Revolving debt is classified as a line of credit -- secured or unsecured -- that's issued by a bank or a mortgage lender, or it takes the form of a credit card. This type of debt allows you to use the funds as needed and repay them as you can, and you can do this repeatedly. If you're responsible about it, revolving debt can benefit you in several ways.

Lots of Flexibility

Revolving debt provides flexibility. For example, if you have a credit card with a limit of $3,000 and you purchase a $3,000 appliance, you will regain the use of your credit line as you begin to pay down the balance. This is helpful if you need access to funds before you completely pay off the balance. As long as you make regular and agreed-upon payments to your creditor, you will have access to the revolving funds.

Convenient Access to Funds

A revolving debt is a debt of convenience, enabling you to make a major purchase -- such as a home appliance, computer or airline ticket -- when you don't have large sums of money but need the product or service right away. Instead of having to pay your debt in full, you can make monthly payments equal to a percentage of the overall balance. This strategy allows you to pay off your debt over a longer period, which leaves more money in your wallet.

Builds Credibility

Not having any revolving accounts can negatively affect your credit score because lenders are unsure of how you would handle these types of debts. However, responsibly handling revolving debt demonstrates your credibility and creditworthiness. When lenders observe, from your credit report, that you are able to responsibly use a credit line or card and establish acceptable payment habits over time, they are more likely to view you as a candidate for additional credit cards or loans.

Let the Cardholder Beware

While revolving debt can work to your advantage when handled responsibly, it also be too much of a temptation for the undisciplined. For example, if you incur too much revolving debt and only make the minimum payments, you'll pay a ton of interest before you ever pay off the original purchase. The interest rates you pay can vary from less than 10 percent to more than 20 percent, according to the Bankrate website, depending on your credit and payment history. If you take on too much revolving debt, it can bring down your credit score.

About the Author

Based in Texas, Cynthia Measom has been writing various parenting, business and finance and education articles since 2011. Her articles have appeared on websites such as The Bump and Motley Fool. Measom received a Bachelor of Arts in English from the University of Texas at Austin.

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