Why You Need a Line of Credit
Let’s be clear - a line of credit (LOC) isn’t free money. It’s not there for shopping sprees, vacations, or impulse buys. It’s a financial tool, and like any tool, it works best when used responsibly. Borrow only what you can pay back in a reasonable timeframe, and treat a line of credit as a backup plan, not a lifestyle fund.
Instant Access to Emergency Cash
When you’re just starting out, you need an emergency fund in a savings account. But once you’re on solid financial footing, you may not need to keep thousands of dollars sitting in cash earning next to nothing.
That’s where a line of credit comes in. With a low-interest LOC, you can cover emergencies or large, unexpected expenses without waiting for transfers. Personally, I keep both a secured and an unsecured line of credit tied to different accounts. When I suddenly need a big sum, I can move money into my chequing account instantly, something a savings or money market account can’t always do.
Think of it as liquidity on demand.
Smooth Out Cash Flow
Even if you plan carefully, life throws curveballs. I track every dollar and line up transfers for investments and extra mortgage payments. But sometimes I get too aggressive, or a one-off expense comes up that I didn’t account for.
Instead of pausing investments or dipping into long-term savings, I borrow from a line of credit for a few days or weeks. It keeps my cash flow steady until the next paycheck or transfer hits.
This isn’t just for individuals. Businesses do the exact same thing. Corporations rely on lines of credit to cover short-term expenses, delays in client payments, or cost overruns on projects. For both households and businesses, a LOC is the ultimate smoothing tool.
Get Approved Before You Need It
The worst time to apply for a line of credit is when you’re desperate. Lenders are more willing to extend credit when you don’t urgently need it. Setting one up can also take time, so it pays to do it in advance.
Pro tip - look for lines of credit with no annual or monthly fees. You shouldn’t be paying for it when you’re not using it. Think of it like insurance - you want it available, but you don’t want to pay for it to sit idle.
The Bottom Line
A line of credit is one of the most underrated tools in personal finance. When used responsibly, it gives you:
- Emergency backup without draining savings
- Flexibility to smooth short-term cash gaps
- Peace of mind knowing you can handle surprises
It’s not a replacement for discipline or planning—it’s the safety net beneath your financial plan. Build wealth, live within your means, and keep a line of credit ready for when life doesn’t go according to plan.
