Continuous credit advances - is it good or bad? What is it?
What are continuous credit advances? Generally, it can be seen as a revolving loan. Other terms for this are overdrafts or evergreen loans. Credit cards can also be a type of revolving loan. Before we dive too deep into continuous credit advances let’s have a look at the basics of loans.
A loan is an amount of money borrowed to be repaid with interest. There is a principle called the time value of money. This means that money that is invested will grow over time based on an interest rate. Whether online loans, personal loans, business loans - or any type of loan you can imagine – when you submit online loan applications someone is going to invest in you. And their investment in you will keep on growing as long as you don’t make payments to them. The longer you take to repay a loan the longer it will have time for interest to accumulate on the loan.
Let’s think about the following concept. Interest – it will either work for you or against you. You decide on which side you position yourself.
When you borrow interest will work against you. This means that as long as you owe money it will keep on increasing. But when you lend – or invest – interest will work in your favour. This means that as long as you have an investment it will see increase through interest.
So are continuous credit advances good or bad? You have to answer that question for yourself. The question you need to ask yourself is whether you want to stay in debt for the rest of your life. The reality is that many people are in situations where they require extra financing to facilitate a need. There are therefore situations where an extra credit advance is necessary, but continuous credit advances should be reconsidered.
The sad part is that borrowing excludes your monthly instalments from the positive power of interest.
As long as you are borrowing your cashflow will be hampered by the repayment of expensive interest. However, when you invest, your money will have the opportunity to grow through interest.
Last but not least the power of compounding interest must never be placed in disregard. The pace at which interest accumulates will pick up as an investment ages. In simple English – interest will accumulate on interest which will accumulate on interest. As long as you are taking out continuous credit advances you are missing out on opportunities to invest that money and grow your wealth to a point where you no longer need to borrow.
Credit advances aren’t bad, but when you become comfortable and get stuck in continuous credit advances you are disqualifying your own money from being invested. An investment that can generate positive interest and over time even get you in a position where you no longer need to borrow.