I told you before how much more you can do with a line of credit than you can with a standard loan. Now, let me explain what you are looking for. Most large banks provide the kind of line of credit we want. There are a few things to ask for:
– A variable interest rate (not my favorite either, but the way the interest is calculated comes out cheaper anyway.)
– Open Line of credit – This is important, some banks offer a LOC that is structured like a loan. You don’t want that; you want as close to a checking account as possible. The account should come with either a debit card or checks and allow you to withdraw or deposit at any time (at least five withdrawals per month). This allows you to deposit income into the account, enabling you to keep the average daily balance low for most of the month and pay bills with that same money as bills come due.
What are we going to do with such an account?
This account does not charge interest until you pull money out, but as I said earlier, you can control how much interest is charged. Now, use this account to pay off the other debts, ESPECIALLY YOUR MORTGAGE.
I will make a 2-5 thousand dollar payment on my mortgage every so often. The interest that I cancel on my amortization schedule is almost double the interest charges on my LOC. One payment can cancel up to $5000 in interest on my mortgage and the interest I pay in my LOC to do this runs around $400-$1000. You’re simply paying $1000 to save $5000; who wouldn’t want to do that? Simply make a payment to the mortgage of around 30-50% of the amount in the LOC (never pull out more than 50% of the total line), then put your income in the account to cancel interest. The money you save (don’t spend) stays in the account and fills it back up. When the account is paid back to around 80-90% of the balance, do it again. The more you save, the faster it goes. This creates a wonderful habit of saving. I’m using a program that makes this process extremely effective, but you can do it on your own and still get around the same results (give or take a couple thousand). This program calculates the best time to make these payments to your mortgage (and other loans), how much to pay and when the payoff date is (which is usually less than half the current payoff time).
LOC is a great way to buy large items cheaper than a regular loan. Many people just have a LOC for standby. They only use them as an emergency fund. The point is, do your homework and learn more about the options available.
“Research twice, invest once”
*I am not a financial advisor or a legal advisor. This is for information only, base on personal experience
