Get out of line of credit debt
February 24th, 2008 Debt
Few people properly budget for their line of credit expenditures. The constant flow of money though a line of credit that never gets repaid. Many people have thousands of dollars on HELOC or an unsecured line of credit.
It is possible to get out of the huge pile of debt without paying any extra money. Just by using the money sitting around in cash in your savings/checking account, it is possible to knock years off your HELOC or other line of credit without paying any extra money.
Both your checking and line of credit accounts are very similar in that they allow you to write checks and pay for products much in the same way. A line of credit can even be used online in a way similar to a credit card giving the borrower even greater flexibility. By using the cash in your checking account as a float, it is possible to cut down on your HELOC debts.
The first step is to deposit your checking account into your line of credit. Instead of cashing your checks into savings, deposit them into your line of credit. Chances are that the interest you pay for a line of credit is much higher than a savings/checking account pays in interest.
By depositing all of your available cash into your HELOC, you can lower your total debts while still being able to draw on the account much like a checking account. Lines of credit calculate interest every day rather than at the end of the month, so adding money even if just for a few days can severely cut down on the amount you owe.
Consider that you have a $20,000 debt on a line of credit at 9% interest and $5000 in a bank account. Instead of keeping your money in a bank account, shift it to the line of credit to lower your overall debt.
By keeping a $20,000 balance, you’re paying about $180 a month for 20 years to pay off the debt. By transferring your bank account to the line of credit, you drop the balance to $15,000 and only have to make a monthly payment of $135. But if you make the same payment of $180 each month, you will cut down on the principal payment much faster than if you just make the minimum payment. The difference of merging your accounts means you make payments for 10 years less than if you keep your accounts separated.
Merging your accounts will have no negative consequences, you can still draw money, still make payments and save 10 years in $180 interest payments. There is no real reason not to.