A credit line could give you access to cash within minutes when you need to make a payment on credit. The funds are transferred directly to your bank account so that you can make payments with your normal debit card or by bank transfer. The process is quick, and the repayments are flexible as you are only required to make a minimum payment each month.
However, just because you have access to a credit line, it doesn’t mean you have to use it. There are more responsible uses of credit lines and these generally fall under surprise or emergency payments. But what constitutes an emergency payment? And are unexpected payments the only reason you can use a credit line?
An emergency payment is generally regarded as a payment which needs immediate attention and not paying it may have adverse consequences. For example, if you receive a fine which doubles if unpaid within 14 days or having to repair a windscreen chip before it turns into a crack and needs replacing altogether. Emergency payments tend to be unexpected and therefore unbudgeted, so they can often create a cashflow shortfall which may result in missed rent payments, utility bills or even a struggle to pay for the weekly food shop.
On these occasions, it might make sense to use your credit line to cover the unexpected costs so you can continue to meet your usual monthly payments without any stress. You can then repay the credit line on your next payday, or even spread the payments over a few months, depending on how much you needed to borrow.
While there are more sensible reasons to borrow money from your credit line, what you choose to spend the funds on is up to you. You know your financial circumstances and what you can afford to repay so you should have a pretty good idea about whether you can afford to borrow money for non-emergency reasons.
Sometimes you might need to withdraw cash for something urgent, although not unexpected – think about occasions where you should have budgeted in advance but maybe forgot, like birthdays. While we wouldn’t recommend using credit regularly to pay for things like gifts and eating out, if it helps you manage your cashflow from time to time then it can be a useful way to use your credit line. You should only borrow within your means and you shouldn’t rely on credit to meet payments where better budgeting would solve the issue.
Ultimately, it’s up to you how you spend borrowed funds. We would only remind you that you do have to pay interest on your Polar Credit Line and so borrowing money unnecessarily means paying interest you didn’t need to (as well as transaction fees).
Having a small amount of savings is great protection against occasional financial hiccups. You should aim for around £300 as this amount generally covers most unexpected payments like a broken washing machine, new car tyres or even a season ticket for a new job. Of course, some emergency payments can cost a lot more, so try to save as much as you can. Even if you can’t meet the entire payment with your savings alone, the more you have saved, the less you’ll need to borrow.
Apart from savings, having a good budget is a great way to manage your cashflow. Just knowing exactly how much your priority expenditure is each month can reduce a lot of the stress that comes with managing monthly outgoings. Additionally, review your budget regularly. Are there any subscriptions you no longer use? Is your MOT coming up? When does your insurance renew? Keeping on track with infrequent payments can also decrease your dependency on credit as you’ll be prepared and may be able to put a bit of cash away in advance.
While a credit line is a convenient way to borrow money when you need it, creating lasting money management habits will also help you meet your unexpected payments. Whether it’s a nephew’s birthday or a high heating bill in winter, having savings and an accurate budget will increase your ability to manage your cashflow without credit.
Looking for something else? Check out the Polar Credit Info Hub.