25 Apr Using Your Line of Credit to Eliminate Student Loans – Part 3
In my last post, I promised to show you how to keep your line of credit balance low all month long. I promise you’ll find it amazingly simple.
Think Small and Create Your Financial Avalanche!
What if someone were to pay you 20 percent interest on your savings account. How would you manage your cash?
Principle to Follow: Keep your savings balance as high as possible all month long.
Your Action: Deposit your money the earliest date possible and schedule withdrawals as late as possible. The higher you keep your balance, the more money your bank will pay you. This is keeping your lazy dollars working 24/7.
Knowing Your Billing Cycle.
To use the bank’s process of calculating interest to your advantage, you need to know the billing cycle they are using to calculate interest. If their billing cycle begins on the first and ends on the last day of the month, you would want to deposit your income ($1,425) on the first and schedule all your living expenses ($2,398) to be paid on the last day of the month.
You can’t assume that your billing cycle will begin on the first and end on the last day of the month. You must ask. Frequently, you can choose your cycle. If you are paid on the fifth and the twentieth ($1,425), you would want the first day of your billing cycle to be on the fifth and the last day to be on the fourth. To earn the greatest amount of interest, you would schedule you living expenses ($2,398) on the fourth of the month. By making this one small change, your bank will pay you an additional $6.33. Review the exhibit, Keep Your Lazy Dollars Working Using a Savings Account or Line of Credit. Scroll to row 37 and look at the orange and green boxes.
Using A Line of Credit Is Better Than Your Savings Account
Since the banks aren’t paying 20 percent interest rates, we’ve created lazy dollars when we leave our money sitting in a checking or savings account. Instead, you can use a line of credit using your bank’s money to help grow your savings or quickly get rid of debt.
You’re borrowing $2,250 at an interest rate of 20 percent, and you can pay as little as $3.37 (light blue box) or if your bank uses the daily interest method and won’t allow you to carry a credit balance, you’ll pay $7.85 in interest. By knowing your bank’s billing cycle and scheduling the payment of your living expenses to the end of the month, your effective interest rate is just 1.24 and 2.9 percent. Just imagine your results if you were charged an interest rate of just 5 percent.
Summary of Your Lazy Dollar Action Plan
Does this seem too simple? You’ve done just three things. First, you are keeping your income working for you all month long. Second, you’ve made a few ‘scheduling’ changes and third, you’re using your bank’s dollars to your benefit.
When using CashMap, the first step in creating your solution is to schedule the dates of your living expenses. Your first CashMap is optimizing your average daily balance. Take a look!
In my next post we’ll project your future positive cash flow.
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