Whenever you require short-term funds, the easy way out seems to be withdrawing your investments, right? After all, it’s your money, and you don’t need to worry about applying for a loan with hassles like paperwork and interest rates. Wrong!
When you withdraw from your investments, your financial goals go haywire. All the hard work and discipline you put in to reach your present stage in life goes to waste. However, there is a way out for you.
With instant money in India, getting small loans is smooth and hassle-free. These loans are disbursed instantly, have lower interest rates and minimal paperwork. If you meet the eligibility criteria, the money gets transferred to your bank account in minutes.
10 Reasons to Consider Taking Credit
Here are 10 reasons for choosing credit instead of withdrawing your investments:
1. Helps in Long Term Wealth Creation:
In the long run, the power of compounding works better for specific categories of assets like equity. The longer you stay invested, the more wealth you can create. When you take credit for your short-term financial needs, you don’t disturb your long-term wealth creation process.
Equity markets deliver the highest returns with moderate risk if you stay invested over 10 years. However, for a short-term period of 3 to 5 years, equity can be very volatile. If you decide to withdraw your equity investments to meet your temporary cash needs, you damage the power of compounding.
2. Maintain Investment Discipline
To be a successful investor, you need to invest in a disciplined way throughout your life. You need to invest every month through a systematic investment plan or SIP without interruption, whether the stock market is going up or down.
Just like you need to exercise regularly for good physical health, you need to invest in a disciplined manner for your financial health. If you stop either, you start having physical and financial problems. Taking credit helps you avoid withdrawing your investments and keeps your long-term wealth creation dream alive.
3. Avoid Debt Crisis
When you start withdrawing from your investments regularly, all your investments will be gone after a certain period. With no investments left to withdraw, you will be forced to take high-interest loans. These loans keep building up over time, and you end up taking credit card loans to repay debt.
The assets you have created so far in life, like a flat or a car, will have to be sold eventually to pay off your debt. You can avoid this crisis by opting for an easy line of credit. These credit line cards give you flexible repayment periods ranging from 3 to 36 months.
You can use these cards for personal loans, top-up the loan when you need it, and the interest rates are affordable. Most importantly, this type of credit helps you avoid a debt crisis.
4. Emergency Fund Stays Intact
While it might be tempting to use your emergency funds, remember that it is meant for bigger emergencies like a job loss or a major hospitalization. If you withdraw from your emergency fund for smaller needs, you will have no money left when you need it for major financial emergencies.
If you need a small loan for a medical emergency, then take credit. You will avoid reducing your emergency fund, and you can pay off this loan in easy installments. Your emergency fund can be used for the right purpose, such as a major financial crisis.
5. Improves Your Credit Score
Your credit score depends on your loan repayment history. If you default regularly, then your credit score falls. Whether it’s a loan, a job, or even renting an apartment, your credit score plays a major role.
When you withdraw from your investments and fall into a debt trap, it will eventually affect your debt repayment capacity since you will not have any investments to liquidate after some time. By taking credit for smaller loans, you avoid building up debt and ensure that your credit score remains high.
Keep your credit utilization rate within 30%. Your credit utilization rate is the amount of debt as a percentage of your total credit limit. The right credit utilization rate gives you a high credit score.
6. Better Terms For Loans
Loans are required for buying a home or a car since it is difficult to pay for these high-ticket items in one go. When you have a high credit score, banks and other financial institutions will give you a higher preference for loans. You will be offered competitive rates, a higher loan amount, a flexible repayment period, and less paperwork.
By taking credit for smaller financial needs and repaying the loan on time, you make sure that your credit score is high. You avoid a financial crisis by keeping your investments intact.
7. Protects Financial Goals
Your financial goals need investments over the long term. Withdrawing your investment would disrupt your financial goals. You will have to invest a higher sum every month or work after retirement to reach your goal.
Credit ensures that you don’t need to touch your investments, and you will achieve all your financial goals on time.
8. No Disruption of Cash Flows
Like every family, you would need a budget for your monthly expenses. Your cash flows are the difference between your monthly income and expenses. If you keep liquidating your investments, you will soon have to pay high EMIs for fresh loans.
With additional expenses, your monthly cash flows will soon become negative. With a short-term loan for smaller amounts, you can avoid any cash-flow problems.
9. Tax Efficiency Achieved
When you stay invested for the long-term, not only do you achieve your financial goals and create wealth, you save on taxes too. If you liquidate equity within one year, you pay 15% taxes on capital gains. If you redeem investments are a year, you pay only 10% capital gains tax.
10. Lower Stress
If you have mounting debt and failed financial goals, it causes a lot of stress, leading to serious health issues in the long run.
Avoid stress by taking credit for lower fund needs. You can comfortably repay these loans and won’t need to worry about debt or failure to achieve financial goals.
Final Thoughts
Your investments are required to help you realize your financial goals. If you redeem these investments before meeting your short-term financial funding requirements, you will fail to achieve your financial goals. Live a stress-free life with short-term credit.
