The Line of Credit
Posted by Richard | Filed under Richard
I called the bank today, for a little old-fashioned telephone banking. (Actually, I live a block away from a branch that’s open on Saturday’s, so I do most of my banking in person, because I like making the bank use my lack of interest on my chequing account to employ people in entry level positions.)
I called about my line of credit. Initially my line of credit got me through University when the education savings dried up. It helped to have a source of credit to tap as I worked my way through, and developed my knowledge of finance. (My father cosigned: Thanks Dad!)
Anyway, after I graduated, and got my first real job, and learned the virtue of paying off deb,t I cleared it out. But I didn’t get rid of it. I got my father removed as a co-signer, so it was just me, but there it sits in my bank account, right under my Visa card when I go online to make sure everything is about right. And so I’ll use it to help shuffle money around, since it’s a (relatively) low source of debt holding when I need it. I don’t think I’ve had more than $1,000.00 in debt there since the wedding: but it was plenty useful for the wedding when all those bills hit the credit cards at once, and the tax refund was still a couple months away.
Actually, on a bit of a lark, four years ago I asked the bank to increase my line of credit, and grinned from ear-to-ear when assetless-me turned out to be trustworthy for almost $20,000.00. That’s pretty cool right there. Logging in to internet banking and seeing all the debt I’m not using is a vicarious little thrill.
I called the bank about the line of credit because I’ve had to take some large bills on the credit card of late, and I’d rather pay 5% interest as I get rid of them than the 15% interest on my credit card. But, this means I’d have to become very attentive to the line of credit, and so I wanted something set up automatically that I wouldn’t have to routinely think about, and wouldn’t risk missing a payment.
It turns out the best the bank can do is sign me up for ensuring my minimum monthly payment happens each month. So, it looks like I’ll have to do some intensive management if I want this paid off in any sensible amount of time. (See: this is why try to I bank in person, the bank absolutely has no vested interest in helping me keep my money: so why shouldn’t I make it as expensive as I can for them to do so?)
Now, I’ve gathered that normally lines of credit are tied to assets… like a house or a condominium… with a particular view to if you get hit with major repairs like “replace your roof” or “excavate your entire foundation” you don’t lose your property, but instead can take liquid cash directly from the bank to do maintenance work.
And, of late, people have started using them to do fun things like “pay off your credit cards” or “vacation in Puerto Rico for two weeks.” And that explains a lot of the indebtedness ratio that’s creeping into Canada.
So, I am wondering: do you have a line of credit, and what do you use it for?
Thirty and married, Richard and his wife, Jane, don’t have kids yet, but are hopeful. Currently renters, Richard and Jane are saving for a place of their own. Richard recently lost his job. “This was a hard blow to take.” He’s since found a new job. Yeah Richard.
April 17, 2012 at 8:02 am
I had a substantial line of credit at TD, based on a mortgage free home, that I opened for emergencies only following an accident that temporarily used up a lot of my extra savings. After about ten years, during which I had no need of any additional funds, the bank notified me that they would be charging me 35 dollars a year for not using the LOC. When I phoned to discuss this fee I was informed that if I cancelled my LOC it would not be easy to get another one. I cancelled during that call and have no intention of ever applying for another LOC.
April 17, 2012 at 8:15 am
No line of credit here! Funny you should mention two weeks in Puerto Rico though – that’s where I’m honeymooning in a few months! It is not cheap – Cuba is much cheaper!
I don’t really see a need for one at this point in my life as a renter rather than home owner. I have zero responsibility for maintenance on anything, I have a decent emergency / down payment fund, so if things come up, I can cover things no problem (assuming of course there isn’t a HUGE problem. I can do 8 months off work without issue, but not job loss with no prospects for a few years).
April 17, 2012 at 9:18 am
I have a SLOC of $10,000 – peanuts compared to a lot of the massive LOCs out there. I have 7 months of school left and I’m trying my best to get rid of as much of it as possible before then, and then I want that thing gone asap. It’s nice to have 5% interest compared to 19% but I’d much rather have the buffer in my savings account (which I am also working on) than having to resort to the LOC. I used the SLOC to pay off my extremely poorly used credit card (live and learn – that’s what early 20′s are for right…?). Now that I am in my mid (to late) 20′s and finishing up my graduate degree I can see how lucky I am to only have a $10000 SLOC rather than the crazy amount of debt lots of students have. Unfortunately my debt is all from crap over-indulgences.
April 17, 2012 at 10:15 am
I have 3 lines one for 5000 at 4.35 6000 at 3.35 and 45,000 at 3.35 (all float with prime so p+1.35 and p+.35) These cost me nothing if I don’t use them first 2 are unsecured larger is secured by my home it is ment for repairs but I seem to save before needing it (a welcome turn of events) I would probally get rid of them if they started charging me a fee,
April 17, 2012 at 10:55 am
We have 2 unsecured lines of credit (one big and one small), and 2 credit cards (zero balances on both cards). We have one small line of credit for emergencies, like a new roof, major car repairs, etc. We have another line of credit that we used when we bought a piece of waterfront land for camping with our 3 young boys. When that is paid off (3-4 years), we will load it up again and build a cabin. Probably should have saved up and bought the land cash in 4-5 years, instead of putting it on credit, but you need to live a little sometimes…..
April 17, 2012 at 11:07 am
Not sure if it counts as a Line of credit but I do have over draft for $500. It use to come in handy when automatic bills sometimes came out at midnight but pay cheques didn’t auto deposit till 2am. But now I try and kept 2500 in the bank to avoid any banking fees. I know I could switch to a always no fee bank account but I like my Credit Union.
April 17, 2012 at 11:20 am
We have a 50,000 LOC secured with a piece of land we own. We used it initally to do an addition on our home, and have since paid it off. We then used part of it to purchase a new (to us) vehicle, since the interest rate is low and our minimum payment is just interest. (For those months when money might be a bit tight, it just seemed easier than commiting to a large monthly payment). I am happy to say with the recent sale of our home and purchase of a new one, our line of credit will be paid off and we will be debt free (other than our mortgage) with a lot of assets!
We plan to keep the LOC… not sure what or if it will be used for.
April 17, 2012 at 11:22 am
no line of credit for me.
April 17, 2012 at 11:28 am
LOL so no one has any imperfections relating to credit use. Of course not.
April 17, 2012 at 11:29 am
We have a line of credit that came with our first home owners mortgage with Scotiabank (STEP)that is also our emergency Visa. If we have a major car repair, or need to purchase a big item (car), we use it. As a result, its minimally used but paid off very quickly. We did have to use it regularly when both our kids needed (not taken lightly) braces at once, but did pay off every month. Credit is a tool, if you learn how to use it wisely and under control.
April 17, 2012 at 11:39 am
Lines of credit are one of those things that I wish I had known about when I was in my teens and early twenties; back before I had been introduced to credit cards as a means of building a credit history. I think my current station in life would look much differently than it does today.
April 17, 2012 at 11:57 am
Had a home equity line of Credit. And my lack of knowledge about it all wasn’t good.
Used it for major repairs (new kitchen), a newer vehicle, and various other things.
Didn’t realize that when we sold the house we had to pay off the “LOC”. It wasn’t ever explained to us in that way. Nor did we look into it or educate ourselves in regards to it.
Lesson learned here.
Right now we have money being set aside for the new roof that we need, and are still saving for the furnace that we want come fall.
Will never use a line of credit again!
April 17, 2012 at 1:03 pm
“(Actually, I live a block away from a branch that’s open on Saturday’s, so I do most of my banking in person, because I like making the bank use my lack of interest on my chequing account to employ people in entry level positions.)”. LOL!!! Richard this made me laugh out loud.. you’re hilarious.
April 17, 2012 at 1:33 pm
We have a $10,000 loc, we used it initially to pay off our high interest credit card and our overdraft, which are still paid off, rarely used and always paid in 30 days if they are used. then we did some home improvements which were paid off within 60 days from an unexpected windfall, then we bought my husband a used truck cause he needed one for his new job. i prefer to use an LOC for vehicle purchases than a car loan because it keeps our insurance costs down, if you have a car loan you must have full insurance on it, if its an unsecured LOC you can just use basic insurance. Here in alberta that is a difference of 40% of your bill. The loc will be paid off in november and both our vehicles should last us another 3 years minimum, giving us time to save up for our next vehicles so we don’t need car loans at all next time.
April 17, 2012 at 2:48 pm
I don’t have one and don’t ever want a line of credit if I can avoid it.
April 17, 2012 at 3:33 pm
I have a line of credit but I don’t use it. I considered closing it but my neighbour got into a cycling accident (she was wearing a helmet thank goodness) when a kid racing his friends clipped her back tire and sent her flying. She’s had to have her face reconstructed and a pin put into her collarbone. The amount of surgery and the cost of her being on disability for a year has been horrible.
They went to get a line of credit after the accident and because she was on disability it was darn near impossible to get. So I keep mine just in case.
I do have an emergency fund and things would have to get REALLY REALLY REALLY bad for me to resort to the LOC.. but I still like knowing it’s there just in case.
April 17, 2012 at 6:05 pm
I won’t pretend like I’ve been perfect financially – I did put out trip to Dominican this past January on our LOC. Would I do that again? No, even though we had the trip paid off before we left the country (paid 3 months ahead of time). I’m slowly learning to be more financially responsible… fortunately I have a job and am not still paying for past mistakes but I should have more in savings rather than just a LOC…
April 17, 2012 at 9:58 pm
Hey Richard,
We’ve got two. Which seems ridiculous for people as young as us, but hubby already had a SLOC when we got together because the government wasn’t funding him at that point. Then when it came time to get married, we took out another one at a different bank to begin setting up our “joint” lives together. This came in handy when purchases for the wedding came up before the paycheques came in. Then we bought a car on that LOC and now here I am today sharing my big ol’ debt story.
We will keep our lines because they’re handy to have, they will keep our interest costs down when it comes time to pay back student loans and then they will just be there as a manageable tool.
April 18, 2012 at 10:36 am
We had a line of credit with a constant balance of $17,000 – $19,000 on it. Since we could only set up an automatic minimum payment, I found that’s all we ever ended up contributing to it. So in November of last year we switched the debt onto a term loan with automated payments, that will be paid off in less than 2 years now.
It just seemed less intimidating to get a loan and have a date set when it would be gone, and we would be DFF.
April 20, 2012 at 12:05 pm
We have an unsecured line of credit. I write all of my cheques from our ‘borrowing’ account to help me keep track of my chequing account balance — if the chequing account dips below $3,000 I’ll have to pay bank fees for the month. I have never been good at anticipating when cheques will be withdrawn, especially our post-dated cheques (such as property taxes), so it is definitely worth a few cents’ in interest.
Otherwise we maintain a $0 balance. I always pay off the line of credit as soon as I see the cheque show up on the account, or at the next pay day at the very latest, so our interest charges are probably $1.00 per year or less (while chequing account fees are something like $30 per month).
April 21, 2012 at 3:01 pm
I have two lines of credit, one is 9% interest at my regular bank for dealing with cashflow like you mentioned. I have rental property so I find it helpful when I have large repairs done that are paid by credit card. I can use the LOC to pay for part of the expenses so that I can still cover the mortgage and utilities with the rent and then I pay it off when the next rent is due. The other is 5% at an online bank which I used some years ago to consolidate a bunch of debt and for unplanned expenses that aren’t covered entirely by my emergency savings. The first has no balance because I always pay it within a couple of weeks and the other has just under $10K. Just this spring I started to almost double my monthly payments on the big one it as I want it cleared out within 2 years if not sooner!
I’m reworking my savings so that I can get to the point where I don’t need to use either of these anymore!
April 23, 2012 at 3:02 pm
Hi Richard, if you still want to set up an automatic payment for your LOC, set it up on the bill payment screen as a bill. When it asks you how much you are going to pay it will say “one time” or “recurring” payment. If you choose recurring you can set up to pay as much as you like on a weekly, biweekly, monthly basis. Not all bankers know that you can do this, but you can! I hope this is helpful.