The answer to this question is tricky as revolving credit is stigmatized and is considered as one of the factors favoring the indebtedness. Moreover, it is not obvious to infer a causal effect between revolving debt growth and development of indebtedness, it is clear that over-indebted people usually have one or more revolving debts in their liability.
This observation is probably the main advantage of this type of credit, namely its ease of use and flexibility. Indeed, once the first contract is signed, the use of revolving credit is not subject to sending any form or any supporting documentation. Its use is free, of course within the limits of the reservation granted.
The downside of this simplicity is that it may encourage you to make purchases on credit recklessly, but more importantly, it can lead you – if you lower your income, for example – to tap into your line of credit even if your repayment capacity became insufficient. In this case, rather than give you a little oxygen, the use of revolving debt may worsen your financial situation – and so much more strongly than its use is expensive. Because the cost of revolving debt is a significant disadvantage, the high cost of credit is due to the high interest rates and low amount of deadlines. Many customers are also attracted by small installments and pay little attention to the annual percentage rate applicable. However, lower the monthly payment is, more the repayment period is long, and the cost of credit is high.
As for the opacity of the cost, it is explained by the annual change in the interest rate (hence uncertainty about the final cost) and the absence of indicative schedule to get an idea of the duration and the total cost of credit.
– If you need funding for a specific expenditure, better focus on traditional forms of credit (loan or loan allocated) whose the cost is clearly stated and generally lower than revolving debt.
– If you don’t have access to other forms of credit, avoid, insofar as possible, the too low monthly payments, and wondering at the end of the first year, to transform your revolving debt into a loan with fixed timelines.
– If you are experiencing financial difficulties related to a lasting change in your budget (or declining revenues up charges), avoid the revolving credit and get closer to commissions indebtedness.
– If you need cash and occasional passengers, revolving debt is an interesting product provided to prepay as soon as possible.