When considering applying for a line of credit, the pros include diversifying your credit sources, which has a positive impact on your credit score. It also allows you to access funds you may need for large purchases, like buying a car. Conversely, a line of credit is too often treated like free money. Such easy access to funds leads some borrowers to rack up consumer debt for things they don’t really need. In addition, outstanding balances will limit borrowing power on other loans, such as a home mortgage.

If you are considering withdrawing from your 401(k) or retirement savings to pay down debt, there are a few things to ponder. If you have a big debt to pay off, you may choose to either put off contributing to a retirement or savings fund, or to withdraw money from an existing fund. On the upside, paying down debt is a good thing, and the sooner it is paid off, the greater the savings in interest expenses for the borrower. However, withdrawing funds set aside for retirement will rob you of the benefits of compounding. Also, pulling the money out of your savings could leave you in a very bad position should something unexpected, like a job loss or illness. The earlier you start saving, the more money you will be able to accumulate for retirement. Properly invested, money saved now is almost always better than more money saved later.

When making choices on investing your money, there are a few things to look at. If you are nearing retirement age, a better option might be investing in invest in risk-free or nearly risk-free vehicles. This way, the risk of losing your hard-earned cash is extremely low. Although you are missing out on the opportunity to have your money work for you, the closer you are to retirement, the more conservative you should be in order to protect your investment. The younger you are, the riskier you can afford to be, because you have the time to make up any losses, and the higher risk may be warranted because it helps combat the effects of inflation on your portfolio’s gains.

If you are contemplating paying off a major loan, that’s a wonderful accomplishment that will save you months, or years worth of interest. But if you are thinking of going this route, make sure you take a look at your interest rate. Some loans have such a low interest rate that you’d be better off putting your money in a savings account that earns you a higher return and paying off your debt monthly. This is a good idea if your savings interest rate is higher than your debt interest rate and you are disciplined enough to pay the debt off on time, every month, and not to spend your money on luxuries instead. Remember, responsibly paying off monthly debt helps you to establish a good credit history. This is especially helpful if you don’t have a credit history or you are trying to rebuild a bad one.

Financial choices often have hidden consequences. Make sure you do your research so your financial situation will be the best it can be.