Revolving debt in a nutshell 

At its core, revolving debt is a form of open-ended credit that revolves or cycles. Unlike a traditional loan, where you receive a lump sum of money and repay it over a fixed period, revolving debt allows you to continuously borrow and repay within a set credit limit. This ongoing cycle of borrowing and repaying is what gives revolving debt its name and unique characteristics. 

While revolving debt can take various forms, the most common examples are credit cards and lines of credit. These financial products are designed to provide you with access to a predetermined amount of credit that you can use and repay as needed. 

Credit cards: the quintessential revolving debt 

Credit cards are perhaps the most ubiquitous form of revolving debt. When you open a credit card account, the issuer grants you a credit limit, which is the maximum amount you can borrow at any given time. As you make purchases or take cash advances, your available credit decreases, and as you make payments, your available credit increases. 

The flexibility of credit cards lies in their revolving nature. You don’t have to pay off the entire balance each month; instead, you can choose to revolve or carry over a portion of the balance to the next billing cycle, as long as you make the minimum payment required. Of course, any unpaid balance will accrue interest charges, which can add up quickly if not managed carefully. 

Lines of credit: a more flexible form of revolving debt 

Lines of credit are another common form of revolving debt, often used for larger purchases or to consolidate other debts. Like credit cards, lines of credit provide you with a predetermined borrowing limit that you can access as needed. However, lines of credit typically have more flexible repayment terms and may offer lower interest rates than credit cards. 

One example of a line of credit is a home equity line of credit (HELOC), which allows you to borrow against the equity in your home. As you make payments, your available credit is replenished, allowing you to borrow again if needed. 

The pros and cons of revolving debt 

Like any financial tool, revolving debt has both advantages and potential drawbacks that should be carefully considered. 

Advantages of Revolving Debt: 

• Flexibility: Revolving debt provides you with the flexibility to borrow and repay as needed, making it a convenient option for managing cash flow or unexpected expenses. 

• Access to credit: By maintaining a good credit history and making timely payments, you can maintain access to a valuable source of credit for future needs. 

• Potential for building credit: Responsible use of revolving debt can help you establish and improve your credit score, which can open doors to better credit terms in the future. 

Potential Drawbacks of Revolving Debt: 

• High interest rates: Credit cards and some lines of credit can carry high interest rates, which can make it expensive to carry a balance over time. 

• Temptation to overspend: The easy access to credit can lead to overspending and accumulating debt that becomes difficult to manage. 

• Impact on credit utilization: High balances relative to your credit limits can negatively impact your credit utilization ratio, which is a significant factor in determining your credit score. 

Managing revolving debt responsibly 

While revolving debt can be a useful financial tool, it’s essential to manage it responsibly to avoid falling into a cycle of debt that can be challenging to escape. Here are some tips for managing revolving debt effectively: 

• Keep balances low: Aim to keep your credit card balances and lines of credit well below their respective limits. High balances can hurt your credit utilization ratio and make it more difficult to pay off the debt. 

• Pay more than the minimum: Paying only the minimum required payment on revolving debt can result in a prolonged repayment period and significant interest charges. Whenever possible, pay more than the minimum to reduce the principal balance faster 

• Prioritize high-interest debt: If you have multiple forms of revolving debt, prioritize paying off the ones with the highest interest rates first to minimize the overall interest you’ll pay. 

• Consider consolidation: If you’re struggling with multiple sources of revolving debt, consolidating them into a single payment with a lower interest rate can simplify the repayment process and potentially save you money. 

• Develop a budget: Creating a detailed budget can help you track your spending, identify areas where you can cut back, and allocate funds towards paying down your revolving debt more aggressively. 

• Seek professional help: If you find yourself overwhelmed by revolving debt, don’t hesitate to seek the guidance of a credit counselor or financial advisor who can provide personalized advice and debt management strategies. 

Are you eligible for a debt relief program? 

If your debt is getting out of hand, you might want to consider debt relief. At JG Wentworth, we’ve helped countless individuals resolve their debt through our Debt Relief Program.* In fact, if you have $10,000 or more in unsecured debt, there’s a good chance you’ll qualify and get the JGW advantage: 

• One monthly program payment 

• We negotiate on your behalf 

• Average debt resolution in as little as 48-60 months 

• 24/7 support 

• We only get paid if we settle your debt 

If you think you qualify for our program, give us a call today so we can go over the best options for your specific financial needs.