Dan Azzoli, Author at Fora Credit

As financial jargon has been thrown at you from left and right over the years, “credit report” may have slipped in there at some point. So, maybe you’re loosely familiar with the term, but do you have any idea what it is, what it’s used for, or what role it plays in your financial profile?Well, to give you a general idea, your credit report serves as a roundup of everything you do related to credit. It’ll contain things like the length of all of your credit accounts, what your current balances are, how frequently you make your payments on time, and all sorts of other things. Over time, the contents of your report are going to change and grow as you partake in more and more credit-related activities.So, to help you learn a bit more about this important part of your finances, we’re going to break down what a credit report is, who’s responsible for creating them, why it’s important, how to get a free credit report in Canada, and more.

What is your Canadian Credit Report?

Like we mentioned, your credit report is a document that provides a snapshot of your credit history, and it is one of the most important financial documents you’ll ever have. It’s used by banks, credit card companies, and lenders, etc. to determine your creditworthiness and your ability to repay loans and credit card debt. Person looking at a credit report Canada.

Person looking at a credit report Canada.

First and foremost, your credit report is used to determine your credit score. Your credit score is a three-digit number that ranges from 300 to 900 in Canada, and it is calculated based on the information contained in your credit report. The higher your credit score, the better your creditworthiness and the easier it may be for you to qualify for loans and credit card accounts, generally speaking. If you have a low credit score, some of these things may be a little tougher.

Who Creates your Credit Report in Canada?

In Canada, credit reporting agencies, also known as credit bureaus, collect and maintain credit information to create credit reports. The two main credit bureaus in Canada are Equifax and TransUnion. These bureaus gather information from a variety of sources, including financial institutions, government agencies, and other creditors, to create a comprehensive picture of your credit history.Banks, credit card companies, and other types of lenders regularly report information about your credit accounts, including payment history and outstanding balances, to the credit bureaus. This information is used to calculate your credit score and create your credit report. The credit bureaus also collect public record information, such as bankruptcy and court judgments, to include in your credit report.These credit bureaus in Canada are required to ensure the accuracy and fairness of the information contained in your credit report. For example, the credit bureaus are required to provide you with free copies of your credit report if you request them, and they must correct any errors that you find in your report. In addition, the credit bureaus are required to provide you with the opportunity to dispute any information that you believe is inaccurate.

5 Reasons Why Your Credit Report is Important

Now that we’ve established what your Canada credit report is and who’s responsible for keeping track of this information, let’s take a look at why it’s important and how it can potentially impact your life.

1. Credit Approval

One of the most important reasons that your credit report is important is that it can be a critical part of the process of determining your ability to repay loans and credit card debt. If you have a history of paying your bills on time, your credit report will reflect that, and lenders may view you as a low-risk borrower. On the other hand, if you have a history of missing payments or paying your bills late, you may instead be viewed as a high-risk borrower, and they may be less likely to approve your loan or credit card applications.

2. Loan Rates

Another reason why your credit report is important is that, in some cases, it can impact the rates of loans and credit card accounts. For example, if you have a good credit score, you may be eligible for lower interest rates or lower fees. On the other hand, if you have a poor credit score, you may be required to pay higher interest rates and fees. Person studying a credit report Canada.

3. Credit Eligibility

On top of playing a role in determining the rates of personal loans you’ve applied for, your credit report can also be used to determine your eligibility for various types of loans and credit card accounts. For example, if you have a good credit score, you may be eligible for lines of credit, car loans, home loans, and credit cards with rewards programs. On the other hand, if you have a poor credit score, you may be limited to secured credit cards and loans that require collateral.

4. Insurance Rates

Your credit report can also play a role in determining your insurance rates. Depending on the type of insurance and where you live, some insurance companies use credit information to determine your insurance rates, and a good credit score may result in lower insurance premiums. On the other hand, a poor credit score can result in higher insurance premiums, which can make it more difficult for you to afford the coverage you need.

5. Employment Opportunities

Finally, your credit report is important because some employers use it to assess your candidacy when you apply for a job. Many employers use credit information to screen job applicants, and a good credit score can make you a more attractive candidate. On the other hand, a poor credit score can make it difficult for you to find a job, especially if you are applying for positions in finance or other related fields.

How Can I Get a Free Credit Report in Canada?

In Canada, you’re entitled to a free copy of your credit report when you request it from each of the two major credit bureaus, Equifax and TransUnion. There are a few different ways to obtain a free copy of your credit report:

Online – Both Equifax and TransUnion provide online access to your credit report. Simply visit their websites and follow the steps to request your free report. You may need to provide personal information, such as your name, address, and date of birth, to verify your identity.
By mail – You can also request a free copy of your credit report by mail by completing the request form on the credit bureau's website and sending it to the address provided.
By phone – You can call the credit bureau and request a free copy of your credit report over the phone.

Person looking at their credit report in Canada on their phone.

Your credit score is a numerical representation of your creditworthiness and is calculated based on the information contained in your credit report. It’s not included in your free credit report, but it can be purchased from the credit bureaus for a fee. You can also look on the internet for services that offer free credit scores.

What can I do to Make an Impact on my Credit Score?

So, what can you do to make an impact on your credit score? Here are a couple of things to consider:

Pay your bills on time – Late payments can have a major impact on your credit score, so it’s important to make sure that you pay all your bills on time, every time. If you’re having trouble keeping up with your bills, consider setting up automatic payments or reaching out to your creditors for assistance.
Keep your credit card balances low – High credit card balances can also have a negative impact on your credit score, so it’s important to keep your balances low. Do your best to pay off your debt, avoid taking on more debt unnecessarily, and use credit responsibly.

Keep Close Track of your Credit Report

What becomes clear after going over the important information about how your credit report can affect you, is how important it is to be aware of what goes on in it and to check it as regularly as possible. You’ll want to make sure that everything you see checks out, and if you find any errors, make sure to report these to the credit bureaus and your creditors as soon as possible. In general, your credit report is an extremely essential part of your financial profile, so make sure to keep up with it!There are likely very few people reading this that couldn’t do with a little more cash lying around. Whether you’re looking to make a big purchase for something like a house or car, or you need to tap into your savings to help you deal with a minor emergency expense, there’s probably no end to the number of things that you could use this extra money for. The reality is that most of us can’t count ourselves so lucky. If your budget is tight as it is, stacking even minor purchases on top of your usual expenses can be a big strain.If you do run into some kind of financial need and you’re looking for some extra help, there are all sorts of financial products out there that might be able to give you the boost you need. A lot of those products fall under the umbrella of installment loans. Because this is a fairly broad category, there are multiple types of installment loans in Canada that are intended for all sorts of use cases.Just remember that before you even think about applying for one, it’s in your best interest to do the necessary research to understand how they work, what they’re meant for, the different types out there, and if there are other financial products that may be better suited to your needs. With that in mind, let’s dive in and explore some of the details surrounding cash installment loans in more detail.

Defining Installment Loans

To put it in broad terms, if your application is approved for an installment loan, you will receive your funds in a lump sum. The “installment” part of the term comes from the repayment process. To pay off what you owe, you’ll need to make a series of scheduled payments that can span a payment period of a few months or even several years depending on the type of installment loan. Lady smiling about getting approved for an installment loan.

Lady smiling about getting approved for an installment loan.

Different loan details (term, amount you’re approved for, etc.) can be impacted by a number of different factors, like:

What kind of installment loan you’re applying for
What lender is providing the loan
How much money you make
The state of your credit history

Whatever specific details of your loan end up being, when you eventually do pay off what you’ve borrowed, your loan account will be closed. So, if you need more money, you’ll need to start the application process from the beginning.If you’re looking to apply for a loan, make sure that you start by doing some research on what’s offered in your province/territory. For example, if you live in Ontario, do an online search for “installment loans Ontario” to make sure you’re looking at lenders that are licensed to operate in your province.One more important detail of your loan that’s worth noting is whether you’re applying for a secured or unsecured installment loan. This is an important distinction that can heavily impact what’s required to qualify for your loan. With a secured loan, you’ll need to put up collateral of some kind to qualify for approval. The nature of this collateral can vary widely. With an unsecured loan, collateral won’t play a factor, which may mean that the interest rates that you’ll be paying will be higher than they would with a secured loan.The last thing to note is that in terms of the application process, you may be able to apply for installment loans online or in person. Online installment loans are simply loans that you can apply for over the internet, although there’s a good chance that there’ll still be some in-person or over the phone component to the application process.

3 Types of Personal Installment Loans in Canada

As we already pointed out, “installment loan” is more of an umbrella term that can encompass a number of more specific types of loans. While you can separate these loans in personal installment loans or business loans, our main focus in this list is going to be on the personal end of the spectrum.While there are more types than the three we have below, these are installment loans that are relatively common, some of which you may have already used before. Let’s look a little more closely at what makes each type unique.

1. Short-Term Personal Installment Loans

While each installment loan on this list falls into the category of personal loans, this specific type is still a little broader than the those that follow. While, in theory, if you’re approved for a short-term installment loan, you’re free to use the money on whatever you’d like, they’re generally meant to help you deal with some type of emergency expense if your savings are low.Usually, these loans are going to be unsecured, meaning you won’t need to provide collateral to qualify. While you won’t need to risk losing a valuable asset, the interest rates that you’ll come up against will likely be higher than if your loan was secured.Another important thing to point out is that “short-term” in this case refers to the intended use of the product, not the length of the repayment period. So, for example, you may apply for a personal installment loan to help you quickly deal with an emergency expense, but the repayment period may still span several months, or even over a year.

2. Mortgages

For most people who have bought a home or property of any kind, there’s a relatively high chance that you either have, or have had a mortgage before. The purpose of this loan is to provide people with the money they need to buy a home. White house in the fall.

In most cases, a mortgage will require you to put a down payment on the home you’re buying, which is a relatively large portion of the value of the home. From there, the company will provide you with money that fills in the gap between your down payment and the total cost of the home you’re buying. From there, you’ll start to pay off your mortgage over the next several years. The payments that you’ll need to make to pay it off will typically encompass a slice of your principal balance (the actual money that you’ve borrowed and need to repay), insurance, interest, and taxes.Because a mortgage provides you with such a substantial amount of money, most people pay it off over a relatively long period of time. The specific length will vary, but it can take some people up to 40 years to fully pay off their mortgage.Another important thing to keep in mind is that a mortgage is considered to be a secured installment loan. In this case, the collateral you’re putting up is the equity you’ve built up in the home you’re buying.

3. Auto Loans

While the specific purpose is different, in broad terms, an auto loan has a similar outline to a mortgage in that it’s a secured installment loan that’s meant to help you with a specific type of purchase. And like a mortgage, the collateral that you’ll need to put up is your equity in the thing you’re buying.The amount of time it takes to pay an auto loan off can vary, but it’s usually a relatively lengthy term that can range up to a few years. Extending this term can help to lower the amount of your individual payments. Having said that, you may ultimately end up paying more interest with a longer term than you would with a shorter one.

What are the Differences Between Personal Installment Loans and Lines of Credit?

Like we’ve mentioned, there are all sorts of financial products out there that may be able to fulfill your needs, so it’s important to take the time to understand the differences between some of the more common ones. Another common type of personal loan that you may want to explore is a personal line of credit, but what makes this product different from an installment loan?The first thing that comes to mind is that if you get approved for an installment loan, the interest that you’ll need to pay will start accruing straight from the time you receive your money, and you’ll then need to start paying any fees and interest on the total balance of your loan. With a line of credit, payments on interest aren’t going to start once you’ve been approved for your loan, but will instead start once you’ve requested a draw and received money. On top of that, you’ll only pay interest and/or fees on the amount of money you’ve drawn, not the total amount of your credit limit. Person showing two other people info about installment loans on his phone.

Person showing two other people info about installment loans on his phone.

Another important distinction of a line of credit is that it’s a type of revolving credit, which means that if you’re approved for one, you’ll generally be able to draw funds on a continuous basis. This makes it a fairly flexible option as you can draw exactly how much you need, as long as you have available credit. You also don’t need to go through an entirely new application process when you need more money.We should also mention that while a line of credit can be a useful tool to have in your back pocket, it’s not necessarily a good thing for everyone to have at their disposal. If you get approved for an installment loan, you won’t have the opportunity to access more credit than you initially had. This can be a good thing for anyone who may be worried about overspending if they were to have access to an open-ended form of credit. On top of this, the scheduled, predictable nature of the repayment process of an installment loan can be helpful to better incorporate your payments into your regular budget.

Learn More About your Options

Whatever the reason may be, at one time or another, you find yourself needing a little extra cash. Maybe you’re trying to make a big purchase, or may you just need a bit of a financial boost to help you out with an emergency. In either case, there may be a personal loan that can help.Just remember that whether you apply for an installment loan, a line of credit, or something else, taking on debt is no small decision. You need to manage your finances accordingly, be responsible, and make sure you’ll be able to pay off what you owe before accepting a loan offer in the first place.If you need a financial helping hand, there are a lot of potential options out there that may be available to you. But how do you decide what is going to work best for your situation? It can be tricky. First, you’ll need to have a clear understanding of the state of your finances, and from there, you’ll have to have some level of knowledge of the financial products that may be available to you.When going through this process, you might come across some products that seem nearly the same on the surface. In this case, we’re referring specifically to credit cards and lines of credit. So, how are these two products similar, and what makes them different? Our goal today is to explore the answers to these questions to help you make a more informed choice when deciding what type of personal loan may be right for you.

Line of Credit vs Credit Card – How are They Similar?

So, is a personal line of credit virtually the same thing as a credit card? Well, not quite, but they do have some fundamental similarities.The main overlapping feature between the two is that they are both a type of revolving credit. What this means is that if you’re approved for either product, you’ll gain access to a credit limit that you can tap into when you need to, as long as you have available credit. You can choose how much money you use, and when you use it. Person looking at computer wondering whether to apply for a line of credit or credit card.

Person looking at computer wondering whether to apply for a line of credit or credit card.

So, for example, let’s say that your credit limit is $2,000, and you find yourself needing $500 to help you handle an emergency expense. In this case, you can choose to use $500, which you can then pay back (with any applicable fees and interest) and borrow funds on an ongoing basis. This means that in this scenario, you could use $500, pay back $400, use another $200, and then pay back $300 with whatever charges you’ll be required to pay depending on the product, and so on. This is why it’s called “revolving” credit.This way of borrowing is distinct from a number of other types of personal loans, like, for example, installment loans. With installment loans, if approved, you’ll be given a lump sum of cash. Interest will then start to accrue on whatever money you’ve borrowed, and you’ll be required to pay back what you owe over a series of scheduled payments. If you need more money after you’ve finished paying off your loan, you’ll need to go through the borrowing process again.

Line of Credit vs Credit Card – How are they Different?

So, we now have a basic understanding of how a revolving line of credit and credit card work similarly, but it’s just as important to understand how they’re different.Generally speaking, a personal line of credit will be offered by different lenders and credit cards are usually offered by major credit card companies who will often partner with other institutions like major banks, department stores, and more.

How am I Charged Interest on my Credit Card?

Firstly, it’s important to understand that your annual percentage rate, also knows as APR, is an important part of how your interest is calculated. When it comes to your credit card, your APR will either be fixed or variable. If it’s fixed, it’ll generally remain the same but could shift if you make a late payment or if your card was on an introductory offer that has expired. A variable rate will change based on the prime rate.There are other types of APR that you could also be charged on your credit card, like:

Purchase APR
Balance transfer APR
Cash advance APR
Introductory APR
Penalty APR

How do Perks Factor in?

One of the biggest differentiating factors between a credit card vs a line of credit is that with credit cards, there’ll usually be some sort of perk or rewards system that comes with using that card. For example, this could be cashback rewards which will give you a small percentage of every purchase back in the form of cash. Some cards may have some sort of travel rewards system which will give you travel points on some or all your purchases which can then be used for paying for flights, hotel rooms, or vacation packages. Person entering credit card info into a laptop.

Person entering credit card info into a laptop.

Why Would I Apply for a Line of Credit?

One important thing to consider when you’re thinking about a personal line of credit vs a credit card is what they’re intended to be used for.In many cases, a personal line of credit is often intended to be used as a financial safety net. No one can predict the next time a leak will spring in a water pipe in their basement, or when they’ll run a flat tire and need to take their car in for a repair. When an emergency expense weasels its way into your life out of nowhere, a line of credit can be an effective option to help you deal with it in the short term.

Why Would I Use a Credit Card?

A credit card can be used for either of the situations we’ve mentioned above, or anything that falls into the realm of an emergency expense. On top of that, they can also be used for everyday purchases. Having said that, if you need money quickly and don’t have a credit card, it may not be your best short-term option.With a credit card, the application process can often take weeks, and if you need money quickly, it may not provide the fast solution you’re looking for. With that in mind, it might be a better tool for planned expenses. On top of that, it can be useful for things like car rentals, hotel rentals, or just general purchases made abroad, as most countries will accept the majority of major credit cards. Conversely, with some lines of credit, the application process can be as fast as a single business day.

How Do I Apply for a Personal Line of Credit?

Depending on the lender you’re working with and what type of line of credit you’re applying for, the application process can vary. Each individual lender has their own requirements for assessing your creditworthiness.While two lenders will likely not have the exact same requirements, they’ll likely look at a lot of the same variables. This can include things like your credit history, your income, and your employment. Overall, their goal is to determine how big of a risk they would be taking on if they decided to lend to you.

How Do I Apply for a Credit Card?

Nowadays, it’s not uncommon for a credit card company to seek you out instead of the other way around. Maybe you’ve already received plenty of offers for credit cards in the mail, or maybe you get asked if you want to sign up for a new card every time you go to a large department store. In any of these situations, the perks and rewards offered are going to be pushed to the forefront, but it’s important to remember to read the fine print. In the end, everything advertised is subject to approval.Another thing to remember is that when you get an “offer” in the mail, a lot of the time, it’s no guarantee that you’ll be approved for a credit card. Often, what you’re really getting is an invitation to apply. Three people looking at tablet deciding whether to apply for a line of credit or credit card.

Three people looking at tablet deciding whether to apply for a line of credit or credit card.

Regardless of whether you’re applying for a credit card over the phone, online, or in person at a bank or department store, the process is going to be relatively similar. There’s a good chance that they’ll perform a hard inquiry into your credit history, which can slightly hurt your credit score. On top of that, they’ll also likely look at your income and employment.If your application gets approved, your credit card will be sent in the mail and may take a few weeks to get to you. If you don’t get approved, your credit score will still be impacted in the same way it would be if you got approved. Just remember that the entire process can take several weeks, so if you need money sooner, you may need to look elsewhere.

Do Research Before Deciding Between a Line of Credit or Credit Card

Like we said at the beginning, there are all sorts of financial products out there for you to sift through when you’re in need of some extra cash. If it’s not a world you’re familiar with, it can be a challenge. But ultimately, it’s in your best interest to take the time to do the research needed and put yourself in the best position to make an informed decision.So, take your time in learning more about the differences between a personal line of credit vs credit card, assess your personal situation, and try to find what works best for you!When you run into an emergency expense, what’s your first instinct? Do you turn to family for financial help? Do you have enough money saved up to deal with most minor emergencies? Or is your budget so packed to the brim that you haven’t been able to stow away any cash for a rainy day?Regardless of which bucket you fall into, you need to have some idea of what you’re going to do if an emergency expense comes your way. Even if you’ve already started working on building your emergency fund, however much you’ve already saved may not necessarily be enough to deal with your unexpected expense.So, if you find yourself in need of some extra cash, your instinct might be to turn to something like an online line of credit. But before you decide to start submitting applications, there are some things you’ll need to make sure of. For starters, you’ll need to be sure that you’ll be able to afford paying back your loan. Next, you’ll need to consider why you want to apply for a line of credit in the first place, and make sure you’re doing it for the right reasons.How do you know when you should and shouldn’t consider applying for a personal line of credit? That’s what we’re going to take a look at in this article!

What is a Line of Credit Online?

A personal line of credit is a type of loan that allows you to borrow money on a revolving basis. This works differently than many other common types of loans that you might see, like, for example, installment loans. If you get approved for an installment loan, your money will be given to you in a lump sum which you’ll then need to pay back through a series of scheduled payments. Person looking at online lines of credit on their phone.

Person looking at online lines of credit on their phone.

With a revolving line of credit, if you’re approved, you’ll be offered a credit limit that you’ll be able to draw funds from when you need it. With these loans, you can choose how much you want to draw as long as you have available credit. If you need more money down the line, you can draw funds again without the need to apply for another loan.With an online line of credit, most of the borrowing process takes place online. This can make all or parts of the borrowing process more convenient and accessible.

When Can I Consider Applying for a Line of Credit? – 3 Use Cases

There are different kinds of credit out there, and some are intended for different uses than others. For the purposes of this case, we’ll be focused on emergency situations where a fast line of credit with a speedy application process may be of help. We should also point out that an emergency situation for one person may not be as dire for another, so you’ll need to determine for yourself if what you’re dealing with is really an emergency or not. Having said that, here are some relatively common situations that many people may consider to be an emergency.

1. Unforeseen Home Repairs

For nearly anyone who’s been a homeowner, you’ll know the headache that dealing with the quirks of your house can cause. On top of the normal (and expensive) upkeep of home ownership, consisting of things like mortgage payments, utility bills, taxes, and more, one area you’ll need to account for is the many unexpected expenses that can come from seemingly out of nowhere. This can be things like:

Plumbing issues
Rot
Mold buildup
A faulty water heater
Furnace repairs
HVAC repairs
Cracked windows

While it can be hard to account for things that you can’t see coming, it’s still worth the effort to try to be as prepared as possible. If you have the room in your budget, try to set aside at least a small amount of money regularly to be used to deal with any home emergencies you might run into. You should also make sure to keep up with the small but important house-related maintenance tasks on a regular basis. If you’re able to deal with these inexpensive and seemingly small repairs as early as possible, you could end up saving yourself the pain of dealing with a bigger (and more expensive) issue down the line. Broken window glass.

If you do find yourself needing to deal with a big or small home repair issue and don’t have the funds to do so, an online line of credit may be able to provide the funds you need. Having said that, it’s important to remember that you shouldn’t tap into your personal line of credit for anything other than an emergency repair. So, if you’re looking to remodel your bathroom to make some cosmetic improvements, it’s usually best to save up instead of taking on debt.

2. Unexpected Car Repairs

Just like with home ownership, dealing with normal car maintenance can be enough of a headache as it is. Even so, when we talk about using an online line of credit to pay for car expenses, we’re not talking about regular upkeep. In general, these loans aren’t meant to be used for recurring expenses of any kind.What we’re talking about now are car related expenses that come out of the blue. What does this look like, specifically? Well, there are all sorts of things that can unexpectedly go wrong with your car. Maybe you suddenly find yourself with a flat tire, or you see the check engine signal on your dashboard light up. While that little light may indicate that something needs looking at, maybe you feel like you can hold off for a few weeks. But a few weeks turns into a couple months, and then all of a sudden you hear an unhealthy rumbling coming from below the hood. You then take your car in and find a huge repair bill staring back at you.While you may not have been able to see this coming, in this type of situation, it’s probably in your best interest to deal with the problem as soon as possible. Whatever the issue is, it’s generally a good idea to deal with it right away. If your savings are low but you need to deal with the problem asap, a fast line of credit may be able to help.

3. Surprise Medical Costs

If you’ve never had to deal with an unexpected medical issue that wasn’t covered by your provincial or territorial government’s health insurance plan, dealing with this type of issue may not be at the forefront of your thoughts. But if you do need some type of medical help that falls into this category, it could cost you a significant amount.The truth is, while many healthcare related expenses are covered by the government, not everything will be, and what is and isn’t covered can vary by province or territory. So, make sure to take the time to look at what’s covered and what’s not covered in whatever province or territory you live in. A doctor and nurse looking at a file.

In any case, like with all emergency expenses, you should do your best to prepare ahead of time by building up an emergency fund, or even putting together a savings account solely for medical emergencies. But, if you do find yourself needing to pay out of pocket for some kind of medical issue that you need to deal with right away, a personal line of credit may be able to help. Outside of applying for a loan, you can also consider:

Checking for any financial aid programs that could assist you.
Trying to negotiate some kind of payment plan to ease the financial burden.

Looking Into an Online Line of Credit for Emergency Situations

While no one is going to envy your situation if you’re dealing with an emergency expense, most people will understand how tricky of a spot you’re in. These types of situations can be especially tough when your savings are low, and your budget is tight. The truth is, the longer you put of dealing with your emergency, whatever it may be, it’ll likely only get worse with time.You’ll want to make sure that you’ve properly assessed your situation and understand what all of your potential options are when it comes to paying for your expense. An online line of credit might be a useful tool to have at your disposal, but make sure you do your best to find what’s well-suited to your situation.It would probably come as no shock to hear that your financial well-being is an incredibly important part of your life. In fact, you probably know that better than anyone. But it’s one thing to realize how important it is, and something else completely to know what you need to do to make sure your financial situation is in a healthy place.So, one of the most basic things you’ll need to work towards a healthy financial state is some type of financial plan. Otherwise, you’ll have no roadmap to get you to where you want to be. In more specific terms, personal financial planning can help you to do things like save money, pay off debt, and achieve the short- and long-term financial goals you’ll need to meet to build the life you’ve envisioned.While it’s clear how important a personal financial plan is, following through on what your plan dictates can be easier said than done. Building a healthy financial foundation can take time, hard work, and patience, and you’ll need to find a blueprint that works for you. As daunting as it can sometimes be, it’s worth the effort! With that in mind, we’re going to explore some of the things you’ll need to do as you start your financial planning journey.

What is Financial Planning?

Broadly speaking, a financial plan consists of a series of guidelines and financial habits that you put in place to try to stabilize your finances in both the short- and long-term. One key thing to remember is that this isn’t a static process that you complete once and proceed to reap the benefits. The financial planning process is fluid and requires you to adapt to your changing circumstances as time goes on. Person thinking about financial planning in canada.

Person thinking about financial planning in canada.

If you do things properly, it can help you work towards your long-term financial goals while also helping to make sure your finances remain in a healthy place. The last thing to keep in mind here is that financial planning may help a lot of people in different situations. No matter what your current financial circumstances are, you can benefit from having a financial plan in place.

How to Create a Financial Plan in 6 Steps

So, we’ve established what financial planning in Canada is and why it’s important, but how do you go about putting a functioning plan together? The truth is, a financial plan that works for someone else may not be particularly well-suited to your situation, so you’ll have to figure out a system that’s geared towards your needs. So, when you’re reading over the steps we’ve listed, think about how they may be able to integrate into your life.

1. Create a List of your Personal Financial Goals

The first thing you’re going to want to do is build out a list of what your financial goals are. You’ll want to make sure these goals are concise and clear so that you can work towards something tangible. Having said that, it’s alright if it’s easier for you to start broad and break things down from there.Consider what you want your life to look like in the next five to ten years, or look beyond that. What do you want to accomplish? Are there big purchases, like a car or house, that you’d like to be in a position to make? Do you want to retire early? Write out these things and do your best to figure out how much money you’ll need to reach them. From there, you can assign timelines and then break down your savings goals into smaller and smaller steps.

2. Pay Off your Debt

While it may be easy enough to lay your financial goals out, it can be a tough proposition to work towards them when you’ve got a mountain of debt to deal with. So, before you start to set money aside, it may be a good idea to make a strong effort to pay off the debt that’s burning a hole in your bank account.There’s more than one strategy to pay off debt, so you’ll want to take some time to do some research and find something that works for you. You might focus on paying off your lowest debt accounts for some quick wins, or maybe you want to tackle your highest interest debt first. Either way, you’ll want to make debt repayment a core pillar of your financial plan.

3. Make a Plan for Emergency Situations

No matter how good you think your financial plan is, it can be a challenge to account for expenses that are impossible to see coming. Because of this, an emergency plan is required in financial planning to make sure you have some means to deal with unexpected expenses that shouldn’t be left unchecked. Emergency sign outside of a hospital.

In these situations, it’s incredibly helpful to have an emergency fund in place. This is meant to be a savings fund that’s specifically designated to help in emergency situations. While it’s a good idea to have several months’ worth of living expenses saved up, any amount can help when you’re in a bind. Try to find a bit of room in your budget to put aside whatever you can afford, because after all, even a few hundred dollars in your emergency fund can help you avoid taking on debt to deal with your expense.

4. Start Saving Diligently

Once you’re able to tackle whatever debt you have and are safeguarded to some extent against emergency situations, you can start to set money aside for whatever savings goals you’ve laid out in your financial plan.If you need to, start by going through your budget to find ways to cut back in certain areas. Can you spot any particular spending categories where things may have gone overboard? Maybe you’re spending too much on takeout on a regular basis, or you’ve built up an excess of subscription services, half of which you don’t even use regularly. Whatever these things may be, start to slowly wean yourself off of the things that are unnecessarily chipping away at your bank account.If you want, you can even look for ways to increase your overall income. This can be a little more challenging than cutting back your spending, but you may be able to do things like work a second job, start a side hustle, or ask for a raise at work.

5. Invest your Funds Wisely

When you have long-term financial goals in your view, it can be challenging to reach them simply by setting aside small amounts of money over time. With that in mind, it might be a good idea to start investing a bit of what you’re earning. Having said that, it’s important to make sure you know exactly what your goals are and what your timelines are for accomplishing them. This way, you can get a better idea of what your risk threshold should be for your investments.Incorporating the practice of investing into your financial planning process should generally be a long-term venture, so it’s a good idea to get started as early as you can. Try to make this a part of your budget so you can set money aside on a regular basis for this purpose. It’s also a good idea to make sure you have a good understanding of some of the areas you may want to invest your money in, like the stock market, real estate, or your retirement.

6. Don’t Forget to Regularly Review your Financial Plan

Like we’ve already mentioned, financial planning is a fluid process. This means it’s important for you to regularly assess what progress you’ve made and see if there are any changes that have recently affected your financial standing in some way. It’s up to you to make the necessary adjustments along the way. Consider things like:

Have your goals changed?
Has your income increased or decreased?
Have you been hit with any expensive financial emergencies?
Do you still have debt to pay off?
How are your investments doing?

Two people talking about financial planning in Canada.

The answers to these questions may factor into what adjustments you need to make, but they can’t be made if you don’t take a temperature check of where you’re at.

Create a Plan for your Finances

The truth is, creating a financial plan for yourself is going to take some time and effort, and making sure you stick with what you’ve laid out can be even harder. There may be some bumps along the road, and the spending restrictions that you’ll likely have to place on yourself can be a nuisance at times. But nothing worth your time is going to be easy, and as long as you keep your eye on the prize and stick to your plan, the end result will be worth the effort.If you want a bit more inspiration to get things started, look for a financial plan template or some financial planning tools online that may be able to give you a hand. Just keep in mind that if you falter along the way, it’s not the end of the world! Everyone makes mistakes, so as long as you bounce back quickly and stick to your plan, things should be okay.What is revolving credit? It probably plays a bigger role in your life than you might have realized if this is a term you’ve never heard before. If you have a credit card sitting in your wallet, or if you’ve ever been approved for a personal line of credit, you probably have some familiarity with how it functions. Having said that, it can be a vital part of your finances and your overall financial profile, so it’s important that you have a detailed understanding of how it works. So, with this in mind, we’ll start by giving a revolving credit definition, walk through some common examples of it, and highlight some of the key differences between revolving credit and other common types of personal loans.

What is Revolving Credit?

The best place to start is by answering the question we asked at the top. In simple terms, revolving credit constitutes a personal loan that gives you the ability to borrow funds on a continuous basis. If you get approved for a revolving credit account, you’ll be given a credit limit that you can draw funds up to. Essentially, this limit is the most amount of money you can possibly draw on this account at one time. If you draw less than your total limit, that amount will be subtracted from your limit, and the amount of credit you still have available to you (before you pay back what you owe) will be whatever is left over. For example, if you have a $2,000 credit limit and you draw $1,500 from it, you’ll be left with $500 in available credit. As you continue to pay down what you’ve borrowed, along with any necessary interest and/or fees, you’ll be able to borrow money again on a continuous basis.Another way of thinking about revolving credit, and another term that’s used to refer to the same borrowing structure, is as open-ended credit. In contrast to something like an installment loan which closes once you pay it off, there isn’t usually an end date with something like a credit card or line of credit. So, as long as you keep your account in good standing and don’t make the decision to close it, it’ll typically stay open.

3 Common Revolving Credit Examples

Like we’ve already said, there’s a good chance that you have some familiarity with revolving credit accounts of some sort already. But if not, or if you want to learn a bit more about some of these types of credit, here’s a list of three of the more common types of revolving credit and what you’d typically use each for.

1. Credit Cards

If there’s one kind of revolving credit you’re likely familiar with, it’s probably a credit card. Their general purpose is to be used for everyday transactions. One of the reasons people use them so regularly is because they usually come with some sort of reward. This could be something like cashback rewards or travel points that you can put towards booking flights or accommodations.Whenever you make a purchase, pay off your credit, miss a payment, or some other kind of activity occurs on this account, it’ll be reported to a credit bureau. Because of this, your credit cards can have a relatively substantial impact on your credit history, particularly if you’re using them frequently. You’ll want to make sure that you keep up with all your payments in a timely manner, which is something you’ll want to do with any set of bills.

2. Personal Revolving Line of Credit

Broadly speaking, credit cards and lines of credit function fairly similarly. With both these credit accounts, you’ll be given a credit limit to draw from, assuming you’ve been approved for one. You can even use lines of credit for everyday purchases as you would a credit card, depending on the type of line of credit and what its intended use is. Having said that, they’re often intended to be used for emergency expenses when your savings fall short.One big distinction is that your line of credit won’t come with a card that you can use to access your funds. Instead, you’ll generally need to request a draw from the lender that your line of credit is with and from there, your funds will be deposited into your bank account. There are certain variables that determine how quickly those funds will be deposited into your account, but it could be as soon as the same business day in some instances.

3. Home Equity Line of Credit (HELOC)

Unlike credit cards and your typical personal lines of credit which are generally unsecured loans, a HELOC is a secured loan. With a secured loan, you’ll need to provide the lender with some kind of collateral in order to qualify for the loan. With an unsecured loan, no collateral will be required, but this means that interest rates on these loans tend to be higher than they typically would be with secured loans. White house with white picket fence.

In order to secure a HELOC, you’ll need to provide whatever equity you have in your home as collateral to secure your loan. Aside from this, the basic structure and function is generally the same as it is with any line of credit.Having said that, HELOCs typically aren’t meant to be used for everyday purchases. Generally, their intended use is for home improvement projects. Specifically, if you’re embarking on some sort of large renovation but you aren’t sure what the exact cost of it is going to be, the flexibility that comes with a HELOC can be a huge help.

What are the Differences Between Revolving Credit Accounts and Installment Loans?

We’ve already briefly mentioned one of the main differences between revolving credit and installment loans. Let’s take a closer look at that key distinction as well as another important difference that may impact your decision if you’re deciding which type of loan works best for you.

1. Closed-End Loans vs. Open-Ended Loans

Like we’ve mentioned, with a revolving credit account, you can draw funds on a recurring basis, and you can choose how much to draw if it’s within your credit limit and you have available credit. This makes it a relatively flexible borrowing option. With a closed-end loan like an installment loan, you’ll receive your funds in a lump sum and if you need more money, you’ll need to apply for another loan.

2. The Repayment Process

When it comes to paying back an installment loan, the process is fairly different than it would be for a revolving credit account like a credit card or line of credit. With an installment loan, you’ll need to repay your loan over a series of scheduled payments that will be pre-determined and of equal value. The repayment period could span several months or years, depending on the type of loan. This can be a useful structure if you like the idea of being able to schedule all your payments into your budget ahead of time, and if you like the spread-out nature of the repayment process.If you do find that you have a bit of extra room in your budget that you want to designate towards paying off your installment loan, then you can consider trying to pay off your loan early. Having said that, some lenders will charge an early repayment fee, so you’ll want to make sure that you look into whether or not that’s the case for the loan you’re paying back. person looking at revolving credit info on their phone.

person looking at revolving credit info on their phone.

The nature of repaying a revolving credit account is a little more fluid. You’ll likely have a billing cycle that sometimes ends at the end of each month, and you’ll need to pay back what you owe by the end of your cycle. However, the amount that you’ll need to repay can change from one cycle to next depending on how much money you’ve drawn. On top of that, you’ll be required to make a minimum payment, which is the minimum amount of money you’ll need to pay to keep your account in good standing. It’s always a good idea to pay more than the minimum payment if you can afford to.

Research your Borrowing Options

It’s not always easy to navigate the world of borrowing. New terms are thrown at you regularly, one financial product may look much like another, and it can be hard to figure out what’s best for your situation. The problem is, it’s tough to deny how important a role your finances play in your life, and it’s on you to get a good grasp on your situation and the world around you.The key here is to take the time to educate yourself, learn as much as you can, and put that knowledge to good use. If a term like revolving credit confused you before, we hope we’ve helped to clear the air!Trying to figure out how you ended up with a pile of debt can be a tricky venture. Finding a way of dealing to pay it off can be even tougher. While, in some cases, carrying debt isn’t necessarily a bad thing, not having a clear plan to deal with it responsibly can become a serious problem.Just remember that if you find yourself in a situation where you’re wondering how you’re going to manage to get yourself out from under the cloud of debt that’s been hovering over you, there may be things you can do to improve your situation.But before you can begin to understand how to pay off debt, you should start by getting a clear idea of the type of debt you’ll be dealing with. Maybe you’re a recent grad and you’re now facing the prospect of having to pay off your student loans. Or maybe you’ve run up a huge tab on your credit cards. Whatever the situation is, you’ll need to know what you’re dealing with.On top of this, you’ll also want to know exactly how much debt you’ll need to pay off. Once you have these two pieces of information, you can start to work on a plan to help you budget to pay off debt. To help you get started, here are six tips to give you a hand!

1. Put a Budget in Place

If you know the amount of debt you’re looking to pay off and what form this debt takes, the next thing you should be doing is finding ways to incorporate your debt payment into your budget. But before you do this, go over your budget and see if you can identify where things went wrong. If you’re already working with an effective budget that’s been geared to your financial situation, then you should be able to spot the problem.But what do you do if you don’t have a budget in the first place? You make one! After all, you can’t learn about how to budget to pay off debt without having a budget in the first place.There are plenty of ways to build a budget, and no single technique is going to be the best system for everyone. You’ll need to spend some time researching different budgeting techniques to try to figure out what might be best suited to your situation.Outside of this, you can also explore different budgeting apps that can help you to build and organize your budget. In either case, you’ll want to regularly review what you’re spending money on and look for ways to cut back on spending where you’re able to. This can help to free up cash that can go towards helping you pay off debt.

2. Pay off High-Interest Debt First

There are different schools of thought when it comes to the best way of paying off debt. Some people suggest starting with your smallest debt accounts to keep yourself motivated with quick wins along the way. While this can be an effective way of going about it, if you want to reduce the total amount of interest that you’re going to end up paying in the end, you may want to consider starting with your accounts with the highest interest rates first.Begin by making a list of all your debt – specifically your revolving debt accounts – ordering it from highest to lowest interest rates. Then start to work on paying off each account from top to bottom, and make sure you make at least your minimum payments on every other account.

3. Exceed your Minimum Payments (When you Can)

Speaking of minimum payments, we should briefly touch on what they are and what they mean to your ability to pay off debt. Person looking up how to pay off debt on their laptop.

Person looking up how to pay off debt on their laptop.

With revolving credit like lines of credit and credit cards, you are required to make a minimum payment each billing cycle in order to keep your account in good standing.Keep in mind, you should always try to pay more than the minimum if you’re able to. Why? Well, the less money you pay on a particular account, the longer you’ll be paying off debt on that account, and the more total debt you’ll end up paying. So, if you can manage to pay more than the minimum, you typically should.

4. Use Windfalls to Pay Off Debt

There may be times over the course of a year where you come into a relatively large amount of money all at once. This is called a cash windfall. It could be from things like a work bonus, your tax refund, an inheritance, or maybe some sort of gift from a member of your family.If you receive one of these, it’s important that you use it wisely. If you’re trying to pay off debt, you may not want to blow it on a vacation or a new computer. Instead, take this as an opportunity to get ahead on your debt payments.

5. Temporarily Stop Using your Credit Cards

When your main aim is to start paying off credit card debt, it might not be the best idea to keep piling it on needlessly. Having said that, some people may have a harder time than others resisting the urge to spend. So, if you count yourself among those people, what do you do?Well, one potential solution is to not give yourself the option to overspend. Start by removing all your credit cards from your wallet before you leave your house to do any shopping. While you might lose the benefits you build up through your credit cards, like travel rewards or cash back, that’s a small price to pay if it’s going to help you curb the amount of debt you take on. Don’t put your cards back in your wallet until you have your spending issue under control.While this can be a useful tactic to implement, it’s not necessarily going to work for everyone. For some people, the fear of increasing your already big pile of debt may not be enough to stop them from putting their credit cards right back into their wallet. If this sounds like you, don’t just stow your cards away into a sock drawer. Give them to a friend or family member that you can trust to keep them for the interim.Another problem you might face is what to do when it comes to online shopping. At this point, you may have your credit card information saved on a bunch of different sites that you shop on, which can make it a lot easier to spend. If this is the case, delete all this info right away.While doing some of these things might not help you pay off debt directly, they may be able to help staunch the bleeding while you get your finances back on track.

6. Cut Back and Save Money

Like we’ve already touched on, if you’re looking for ways to pay off debt, you’ll want to start by going over your budget. The first thing you’re going to want to look for is any clear signs of overspending and do what you need to regulate these right away. Red piggy bank in front of green background.

Red piggy bank in front of green background.

After that, it’s time to try to find ways to save money where you can. Having said that, understanding how to pay off debt and save money at the same time isn’t always so simple. This can be especially true if money is tight in the first place. The key here is to be mindful of your spending, avoid the previous mistakes you’ve made, and get comfortable with the idea that you’ll likely need to sacrifice some things in the name of paying off debt. Some things that you can do to help you through this process can include:

Not spending more money than what you have coming in.
Setting small savings goals to keep your goals achievable.
Automating the savings process.
Trying to put small amounts of money towards your savings before it goes to anything else.

Be Diligent to Pay Off Debt

We never said paying off debt was going to be easy, and depending on your situation, you may have a long way to go. You’ll need to do your best to stay motivated as you go down this road. If you feel like you’re in purgatory, it might be a lot harder to see things through till the end. So, set yourself small goals for you to hit along the way, and when you reach one, reward yourself with something small. Maybe you go out for lunch, or maybe you go see a movie. Whatever it is, pick things that are going to keep you chugging along. While it may not be easy, it’s doable, so do your best to create a better financial future for yourself!Whether you’re on the hunt for a new house and need some financial help, or you’re facing an emergency expense and your savings have run dry, there’s a good chance that at some point in your life, you’ll be in the market for a personal loan.When this time comes, you’ll need to have a good grasp of what your specific needs are and what your overall financial situation looks like. From there, the next step would be to assess your potential options. This can sometimes be easier said than done if you’ve never had any reason to look for a personal loan in the past. It can be tough to sift through the countless financial products out there, with their nuanced innerworkings and their varied use cases.So, if you’re just starting out, it might be best to keep things simple and start by learning about some of the more common, broad categories of loans. Two types that fall under this umbrella are installment loans and lines of credit. Both these types of personal loans can be useful in any number of situations, so it’s important that you have a good understanding of both in order to better assess what might be right for you. So, with that said, we’re going to go over a broad definition of each and talk about some of the ways in which they differ to help increase your knowledge on these types of personal loans.

What is a Line of Credit?

When we talk about both lines of credits and cash installment loans, we should be clear that we’re giving broad definitions of each, as there are different versions of these loans that fall under each umbrella.Having said that, there are still some general traits that virtually all lines of credit are going to have, and that’s what we’ll be focusing on. For starters, a personal line of credit is a kind of revolving credit. This means that you can draw funds from a pre-determined credit limit on a continuous basis, as you pay back what you owe. If you use a credit card on a regular basis, you should have some idea of how this type of credit account works. Person looking at computer researching differences between lines of credit and installment loans.

Person looking at computer researching differences between lines of credit and installment loans.

This type of borrowing option is fairly flexible, as it allows you to choose how much you’re going to draw based on your needs, as long as you have available credit. So, if you’re facing some sort of home repair that’s going to cost you $200, you’ll have the ability to borrow no more or less than you need, assuming you have that much available credit.There are a couple more features of this type of loan that are worth mentioning. When it comes to repayment, you’ll typically need to repay what you’ve borrowed by the end of your billing cycle, which in some cases, could be at the end of the month. Having said that, you’re required to make a minimum payment, which is the minimum amount of money you have to pay in order to keep your account in good standing. Keep in mind that you should do your best to make your payments in full to avoid accruing more debt than you need to.Another important feature about the repayment process is that you’ll be paying interest and/or fees based on the amount of credit you’ve drawn, not the total amount of the line of credit limit.

What is an Installment Loan?

Unlike lines of credit, installment loans have a bit more of a firm structure to them. What does this mean? Well, for starters, if you apply for an installment loan and get approved, you’ll be given a specific lump sum as opposed to getting access to a pool of credit to draw from. Once you receive your funds, interest will start to accrue on what you’ve borrowed.Another structural difference between a line of credit and installment loan is the repayment process. With an installment loan, you’ll have a pre-determined payment schedule laid out for you right at the beginning of the borrowing process. These payments will typically be scheduled on the same day(s) of each month and will be of equal value. They can be spread out over the course of a few months, or even several years in some cases.

Differences Between Secured and Unsecured Installment Loans

While we won’t go over each specific type of installment loan, one key distinction we should make between some of the types of cash installment loans out there is between secured and unsecured installment loans. Lock on blue door.

With a secured installment loan, you’ll need to provide collateral in order to qualify. This collateral will come in the form of a valuable asset which essentially ensures that even if you default on your loan, the lender providing the loan will still recoup some sort of value from the arrangement. The form that this collateral will take is going to depend on the type of loan you’re applying for and the lender that’s providing the loan. While a secured installment loan can seem like a risky venture, the safety net for the lender provided by the collateral you’ve put up means that you’ll typically be able to receive relatively low rates on your loan.As you might have guessed, you won’t need to provide collateral in order to qualify for an unsecured loan. While that means you won’t need to risk an asset, you’ll likely see higher interest rates than you would with a secured loan.

2 Key Differences Between Installment Loans and Lines of Credit

After giving a broad definition of both these types of loans, we can see that there are some obvious differences between the two. Having said that, it’s worth taking a closer look at some of them so we can better understand the situations that one may be more suited to than the other.

1. Interest

When it comes to how interest works with an installment loan, one of the key things to remember is that interest begins to accrue right when you receive your funds. Since you get your funds in a lump sum, the interest and fees you’ll need to pay is calculated on the total loan amount right away.Like we mentioned earlier, with a personal line of credit, interest won’t start to build up until you draw funds from your available credit. The interest you’ll need to pay will be based on whatever amount you’ve drawn.

2. Revolving Credit vs. Lump Sump

One of the benefits of a line of credit is that it’s a fairly flexible borrowing option. This can be a valuable quality when you don’t know exactly how much money you’re going to need in a particular situation. This could be in the case of an emergency situation, or even for a more large-scale project. For example, if you’re doing some sort of extensive home renovation but don’t know how much it’s going to cost you, a home equity line of credit is typically meant for these types of situations. Person handing over line of credit contract to someone else.

Person handing over line of credit contract to someone else.

Having said that, having easy access to credit isn’t always going to be a great thing for every person, particularly if you have a penchant for over-spending or mishandling credit. This could lead to excessive debt which can be a tough cycle to get out of. The key is to make sure you’re always using credit responsibly.With an installment loan, whatever amount you get approved for is what you get, you won’t have the option to continuously tap into more funds. In addition to this, the fixed nature of the repayment schedule can make it a little easier to plan your budget around your loan repayments. With a line of credit, you’ll still have a fixed due date but have more agency in terms of the amounts you draw.

Consider your Options Carefully

When it comes down to it, there’s no universal answer as to what loan is going to be the best option for every person. Ultimately, it’s going to come down to the nature of your financial situation, what your needs are, and all sorts of other factors. These are some of the things that should determine the kind of loan that you’re considering applying for. In some cases, you might value the flexibility that a personal line of credit offers, while in other instances, you may find comfort in knowing the fixed repayment amounts of an installment loan.Whether you feel like a line of credit or installment loan is more up your alley, you should always remember that if you don’t properly manage the borrowing process, you can get yourself into some serious financial hot water. So, before you decide what loan to apply for, make sure you have a clear idea of what you’re getting yourself into. List out some of the pros and cons of each loan, evaluate your situation, see what options may be out there, and always make sure you can afford to repay what you’ve borrowed. Stay informed and put yourself in the best position possible to make the right choice for your situation!There are all sorts of reasons why you might find yourself in the market for a personal loan from time to time. Maybe you’ve run into an emergency expense and you don’t have the savings you need to cover it. Or maybe you need help making a big purchase, like a house or a car. Whatever your personal situation may be, applying for a loan might be the financial solution you’re looking for.While it might seem like the obvious choice to make, you should never apply for a personal loan in Canada without considering the impact it can have on your finances. If you’re considering a loan that you aren’t able to afford, or you don’t make sure you have a clear understanding of the terms and conditions, you may get yourself into some financial hot water that’s hard to fix. Because of this, it’s vital that you have a clear idea of how to pay off a loan.With this in mind, we’re going to walk through some tips to help you pay off your personal loan, and briefly touch on what you can do to help you avoid the need for a loan in the first place.

Start with a Financial Safety Net

Before we dive into some of the things you can do to help you pay off your loan, it’s important that we focus on what you can do to prevent the need for a loan in the first place. This will apply more so to helping with smaller emergency expenses versus large purchases, like for a home or car.One of the best things you can do to safeguard against future emergencies is to start building an emergency fund. The purpose of this fund is to act as a barrier between your everyday cash and any emergency expense that might come your way. So, instead of having to apply for a personal loan to help you deal with an emergency, you can tap into your emergency fund instead. Even if you can’t cover the entire cost of the emergency with your savings, it can still help you to avoid having to take on debt. Pink piggy bank in front of white background.

Pink piggy bank in front of white background.

It’s important to remember that you’re going to want to make sure your emergency fund money is separate from your everyday spending money, and even separate from your other savings. While you want this money to be accessible, you don’t want to be tempted to use it on anything other than an emergency expense.Do your best to contribute what you can on a regular basis. You’re not going to build a fully stocked emergency fund overnight, so just try to play the long game as much as you can. Try to get a sense of how much money you can contribute to it by taking a hard look at your budget and figuring out if you have any spare cash lying around at the end of the month. If you do, put it to good use!

How to Pay Off a Loan – 4 Tips

If you’re stuck without an emergency fund and need some extra funds, then it’s at this point that you might start to think about applying for a personal loan. If you end up accepting a loan offer, here are some tips that may be able to help you out during the repayment phase.

1. Make your Loan Payments a part of your Budget

The first thing you should do before you accept or even apply for a loan in the first place is to take a close look at your budget and figure out if you can afford to repay your loan. If the loan you’re looking at has the important loan details visible on the company’s site, plug these numbers into a loan payment calculator to see what it’ll cost you.Figuring out how to work loan payments into your budget amongst all your other usual expenses can be easier said than done. If the math isn’t adding up and you don’t think you’ll have room for everything, have a close look at your spending and try to find some things you can cut back on. While the specifics of a budget and where money needs to be spent is going to be different for everyone, doing a complete audit of where your money goes is a great way to gain insights into some of the less productive ways that you’ve been using your cash.Like we said, everyone’s budget is going to be different, but where do you start if you’re looking to cut back on spending? Well, the first thing to do is to list out all the non-essential things that occupy your budget. This could be things like:

Multiple streaming subscriptions. If you’re paying for multiple, cut back to one.
Opt for eating in more often.
Movie tickets.
Non-essential trips to the mall.

Some people may only need to make a little room by cutting back in one or two areas, while others may need to make a more substantial overhaul to their spending. Figure out where you stand, what you spend your money on, and where you have room to cut back.

2. Pay Extra if There’s No Penalty

If you’ve gone through the exercise of looking through your budget and cutting back in certain areas, you may have actually been left with a little more wiggle room than you thought you’d be able to make! So, if you have a bit of extra money to play around with, use it wisely. Lock on chain on green door.

Making some extra contributions to your emergency fund would be a good start. Another thing you might want to consider before that is to make extra payments on your current personal loan that you’re in the process of repaying. By doing this, you may be able to lower the total amount of interest that you’ll have to pay over the entire duration of the repayment phase.While this can be a good idea in some cases, in others, it may end up costing you more than you’re already scheduled to pay. Why? Well, some lenders may not want you to pay off your personal loan early in order to maximize the amount of interest that you’ll have to pay, so they impose an early repayment penalty. So, with this in mind, it’s important to check to see if this penalty will come into play with your loan, and if it does, weigh the cost of early repayment against what you’ll be saving on interest in the long run.

3. Exceed the Minimum Payment

If you have a credit card or a line of credit, you should be familiar with what a minimum payment is. It’s essentially the minimum amount of money you are required to pay on a revolving credit account in order to make sure your account remains in good standing.Making a minimum payment might be easier instead of making the full payment if money is a little tight, but you’ll want to make sure you don’t fall into the trap of only making your minimum payment because you’d rather spend that money on a fun night out or a new computer. If you decide to make just your minimum payment, whatever you don’t pay back is going to extend to your next billing cycle and you may end up paying more interest on that personal loan in the end.On top of this, you simply won’t be paying off as much debt as you can, which isn’t a great idea if you can afford to pay more. So, pay off as much of your loan as you can and get that debt off your plate!

4. Don’t Pay Off One Personal Loan with Another

If you check your calendar and see that you have a loan payment coming and don’t think you’ll have enough money to pay it in full, what do you do? Well, we can tell you that generally, it’s not time to panic and apply for another personal loan to handle the first one.If you know of anyone who’s done this, it’s possible that they’ve applied for a debt consolidation loan. These loans help people to refinance the debt they currently have and bundle multiple high-interest debts under one umbrella. This umbrella takes the form of a debt consolidation loan. In general, you’re paying off multiple high-interest loans with a single low-interest loan. Person typing on laptop looking up how to pay off a loan.

Person typing on laptop looking up how to pay off a loan.

While there are certain instances where this can be useful, if you find yourself applying for a loan every time you need to pay off an older loan, you’re not really getting to the crux of your issue. All you’ll be doing is taking debt that you’re currently dealing with and displacing it somewhere else.In these situations, your main focus should be to work on your spending habits and incorporate healthy financial practices into your everyday life.

Borrow Responsibly

Whatever direction you go in when it comes to taking on debt, your experience is going to be specific to you. The key is to find some sense of balance over the course of the borrowing process. This is definitely going to include the repayment process. The tips that we’ve gone over in this article can hopefully give you a hand, but you’ll need to find what works for your personal situation. Remember to be diligent, research your borrowing options thoroughly, and approach the borrowing experience responsibly!Emergency expenses are rarely a walk in the park, especially when money is tight and your savings are running low. Whatever situation you find yourself in, you might be having a hard time seeing what your path forward should be.So, what are your options? Well, this is going to depend on your personal situation, what help you have available to you, and what your financial situation looks like, but one potential option that you might want to consider looking into is an emergency line of credit.To help you learn more about this financial safety net, we’re going to take a look at what an emergency loan is, how to apply for an emergency line of credit, and more.

What is an Emergency Loan?

An emergency loan is exactly what it sounds like. It’s a short-term personal loan that is designed to be used when you need a little extra money to help you deal with some sort of financial emergency. You’ll want to make sure you restrict your use of them to emergency situations and generally only use them as a last resort. They’re not meant to be tapped into for non-emergencies.There are all types of personal loans that could be used in emergency situations. This could include loans such as installment loans, title loans, and even your credit card in some situations (as long as you can repay what you’ve borrowed on time).Another common type of emergency loan is an emergency line of credit. Let’s take a closer look at how these personal loans work.

How Does an Emergency Line of Credit Work?

An emergency line of credit is a type of revolving credit, which means that if you’re approved for one, you’ll be given a credit limit that you can draw funds from. You can continue to draw from your available credit as you pay off what you owe. The interest and/or fees that you’re charged on your line of credit will be based on the amount of credit you draw, not the total amount of your line of credit limit.If you’re looking to apply for a line of credit, there are a few different places you can turn to, including banks, credit unions, and online lenders. Person learning about cosigners online.

When it comes to online emergency loans, one potential benefit is the speed of the application process, as you can usually get through it in just a few minutes. You may even be able to get funds deposited into your bank account in a single business day, depending on the lender you’re working with and your bank’s policies. Online loans are also convenient because you can often start the application process from wherever you have internet access.An emergency line of credit may sometimes fall into the unsecured loan category. To qualify for an unsecured loan, the lender that’s providing or servicing the loan will generally focus on your credit score as well as a few other aspects of your financial profile to determine your creditworthiness. If you don’t have a strong credit history, you may still be able to find a bad credit line of credit to help you in an emergency, but these will typically be expensive products so don’t apply for one unless it’s your only option and you know you’ll be able to pay it off.On the other end of the spectrum, when it comes to secured loans, you will be required to put up collateral to qualify for them, which means that if you can’t pay back what you’ve borrowed, you risk losing that asset altogether. However, in some cases, these types of loans may come with lower rates than unsecured loans.

When and Why Would you Apply for a Line of Credit for Emergencies?

If you’re planning on applying for a personal loan, you should stop for a moment to consider what your needs are, if those needs are worth taking on debt for, and what type of loan is best suited to your personal situation.We’ve already established that emergency loans are meant to be used for just that – emergencies. Specifically, they can be a financial safety net for when you don’t have an emergency fund in place. Having said that, having access to a revolving line of credit may be tempting to tap into for things other than emergencies. This can be a slippery slope to travel down. Ultimately, emergency loans are not intended for things like your next vacation, or a trip to the mall for frivolous spending.Even if you plan to use your personal line of credit for an emergency, it’s still important to take the time to check your finances, understand how much money you’ll need to pay in interest and/or fees, and whether or not you can afford the cost of borrowing. After all, you don’t want to dig yourself into a deeper financial rut than you’re already in.So, what constitutes an emergency situation? There may be some variance from one person to the next, but emergencies could consist of things like:

Essential car repairs.
Home repairs that will get more expensive if you don’t deal with them right away.
Healthcare expenses that you need to pay for out of pocket.

How to Apply for a Personal Line of Credit in an Emergency

A lender is going to look at a number of different things when trying to determine your creditworthiness. This can include things like:

Your credit score.
Your income.
Your employment.
Your province/territory of residence.

Person reviewing personal loan contract.

Certain things may be considered differently than others depending on the lender, and like we mentioned earlier, some may not weigh your credit score as much as others. In any case, it’s important to get an idea of what a lender might consider before you apply for an emergency line of credit.If you’re planning on applying for a line of credit for emergencies, here are some steps you can take to prepare yourself.

1. Review Your Credit Score and Report

One of the first things you should do before you decide on which emergency loans you’d like to apply for is to take a peek at your credit score. You can do this by paying a fee with either Equifax or TransUnion, getting it for free from an online credit score provider, or checking your credit card statements to see if it’s included there. Having your credit score in hand can help to give you a general idea of what kinds of loans and rates you may be able to qualify for.On top of checking your credit score, it’s also a good idea to check your credit report, which you can get for free with both Equifax and TransUnion. Go over your report with a fine-tooth comb and see if there are any delinquencies that shouldn’t be there. If there are, these could be negatively impacting your credit score, which could ultimately lower your chances of being qualified for a personal line of credit with rates that suit your financial situation. If you do find any errors, be sure to contact the credit reporting agency to start the process of fixing them.

2. Organize your Documentation

Like we touched on earlier, there are a few different line of credit requirements that could come into play when a lender is deciding whether or not to approve your application. This might be things like your income, your employment, and more. Instead of waiting for them to ask you to provide the necessary documentation, get some of this information together ahead of time. The better organized you are, the smoother the application process is likely to be.

3. Review your Potential Options

If you’re in the market for an emergency loan, you’re not just going to want to click on the first thing that shows up in your search results online and leave it at that. You’ll want to ensure that you’ve been thorough, reviewed your potential options, and that you apply for something that’s suited to your situation. Person applying for a personal loan with a cosigner online.

Person applying for a personal loan with a cosigner online.

No two emergency lines of credit are going to be identical, so you’ll want to consider things like their interest rates, the amount you might be able to qualify for, the fees involved, and more. Ask yourself questions like:

Are there going to be fees and how much will I be charged?
Is the max credit limit going to be enough to help me with my emergency expense?
How much interest will I be charged?

Each one of these things is just as important to consider as the next, so it’s important that you sit down, understand what you’d be getting yourself into with each loan, and start to rule out the emergency loans that don’t fit your situation.

Consider if an Emergency Line of Credit is Right for You

No one can predict the future, and unfortunately, that means that you’ll have no idea when an emergency is waiting around the corner to throw a wrench into your finances. Dealing with an emergency expense can be tough, and it can be difficult to dig yourself out of the financial hole that it can leave you in.One of the most important things you can do to help you down the line is to start contributing towards an emergency fund. These are meant to help you in times of financial need. But if you’re caught without one and are left to face down an unexpected expense without the savings to handle it, an emergency line of credit may be an option worth exploring.Disclaimer: This page provides general information only and does not constitute financial, legal or other professional advice. For full details, see Fora’s Terms of Use.

¹ Not all applications are approved. Duration of approval process may vary. Credit limits may vary and are subject to verification criteria.

² If approved, any requested funds will typically be deposited into your bank account the same business day; timing of funding may vary. The date and time the funds are made available to you by your bank are subject to your bank’s policies. For specific funding cut-off times, click here.

³ You can request a draw at any time, so long as you have available credit, your account is in good standing, and you otherwise meet any criteria required to request draws from your account.

⁴ The exact impact of your Fora account activity to your credit score is unknown as your credit score is influenced by numerous contributing factors.

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