25 Apr Shopping for Your Line of Credit – Part 3
What’s my Mission?
If you’re visiting my blog for the first time, the focus of my blog is our success isn’t based on big choices that we make but the sum of small steps. Each step we make reflects our attitude. Over time, the impact is huge. ‘Small changes bring big results’ by ‘consistent persistence’. Whether it’s our finances, professional development, raising our children or the quality of our marriage, these two simple phrases captures the reality of life.
Managing our money is all about putting our dollars to work twenty-four hours a day seven days of week. Most of us leave our dollars sitting in our checking account doing nothing. These are lazy dollars. Banks use our lazy money to make money for their shareholders. CashMap’s strategy is about using simple budgeting techniques and a line of credit to turn the table on the banks by using their money to help us build financial wealth.
When you visit financial institutions, speak with your financial advisor or CPA, you’ll quickly learn that few of them will understand this simple strategy. So, this is why this series’ focus is on identifying key questions to ask when shopping for a line of credit.
Two Templates Available for Your Use
I have created two templates for your use. To help you identify the steps to get started and easily track your progress, I created a simple list of action items called Your Next Step Checklist. To keep track of the features offered by financial institutions in your area, use this second template called Your Line of Credit Shopping Comparison.
Accessing Your Line of Credit Using Your Checks
Looking at ‘Your Line of Credit Shopping Comparison’ sheet, half way down the page you’ll see two features, ‘Link Between Checking Account’ and ‘Free Overdraft Protection’. When you open a line of credit, the bank requires that you also open a checking account. Why are these features important? Remember, as soon as your income is deposited in your checking account, you are shifting it to your line of credit as a loan payment. This means there’s no money left in your checking account. You need to draw dollars from your line of credit to cover your living expenses.
If you didn’t have a line of credit and you wrote a check for an amount greater than the balance in your account, your check would bounce and you would be charged $30 for insufficient funds. With overdraft protection, the bank covers your check – for a fee of course.
When you have a line of credit, you want the dollars withdrawn from the line and moved to your checking account.
The Easiest Way to Pay Your Living Expenses – Keep Using Your Checks
The question is what’s the easiest to do this? My personal favorite is to continue writing checks from my checking account. You’re thinking how can I do this if I’ve moved all my money to my checking account? Great Question!
Some banks will link your checking account to your line of credit. If there’s not enough money in your checking account, the dollars are drawn from the line of credit. This means you keep doing what you’ve always done. You write checks and at the end of the month you balance your checking account to a zero balance.
Remember, in our example we are writing a check or using an on-line bill payment service to pay the mortgage on the 15th of the month and all other living expenses on the 28th. As an example, my wife and I use Sterling Bank. Their link shows that when you link your checking account to their line of credit, the only fee is the interest charged by using the line of credit. This in my opinion is the most convenient.
Watch Out for Hidden Fees!
Other financial institutions will charge a minimum fee to transfer dollars from your line of credit to your checking account. For example, Chase Bank touts the convenience of their checking account; however, in small print at the bottom of the website in footnote 11, it states,
11Overdraft Protection Transfer Fee: Interest and fees will apply for transfers from your Chase credit card or home equity line of credit.
No where on their website could I find the fees listed!
Is there a way around this? Yes! Many banks provide line of credit checks. Most often there’s no charge. I like to keep things simple; consequently, this is not my preferred approach. I would not use Chase Bank!
In my next post, I’ll discuss the benefits of carrying a credit balance.
Ready to start your journey towards financial freedom? Get started today!
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