What is Revolving Credit Line?

A revolving credit line is essentially a line of credit granted by the bank to an individual or an organization that may be used continuously as loan amounts are paid back. A prime example of a revolving credit line is a credit card.

How It Works

If you have a credit card, then you have a revolving credit line which will fluctuate according to purchases you have made. For instance, if you have a $500 credit limit, and you pay for a purchase of $150 then the amount available to you is $350. The process is simple enough on the surface. Now the end of the month comes and you pay the entire $150 that is due. You now have the original $500 back, but wait! If you pay less than the $150 that you used, the unpaid balance is going to start accruing interest charges. For the sake of simplicity, let’s say 10% flat. So you’ve paid back $75.00 of the $150 leaving you a $75 balance. Add to that the 10% interest and you now owe $82.50. The next month your revolving credit line that is available is 417.50.

Be Careful!

Studies have shown that if you pay only the minimum amounts due each month, it could take you as much as 20 years to pay off a credit card depending on the balance!

In any case, make sure you pay the payments each month. Late fees will be assessed, and then THEY start accruing interest as well and your revolving credit line can have you backed into a corner.