Lines of Credit - Creative Ways to Use Them

Most of us have lines of credit (LOC) these days, either racked up with debt or just sitting there waiting to be used. Rather than just filing away your statement month after month, why not get creative with the way you use them?

Here are a few ways that I try to be creative with the banks money:

Bank Account - if you have a balance, why not use your line of credit as your bank account? My brother-in-law does this – he has his paycheque and anything else deposited directly to his LOC. He also writes cheques directly from it. The advantage is you’ll minimize your interest and there are no bank charges! The disadvantage is your banker might not like you if you happen to have a credit balance.

Emergency Fund - Many people advocate having an emergency fund of at least six months cash in case something seriously happens to you. I fully agree but I want my cash working for me. So, I keep an empty LOC around just in case – I take the emergency fund cash and invest it in something more worthwhile than a bank account. Quite often, if you invest the cash in something more worthwhile, it may not be that liquid so the LOC takes care of this.

Investment Opportunities - if you don’t have the money to make that stock purchase that you know can’t ‘go wrong’, leverage your finances and borrow. The interest on the LOC may be tax deductible but keep in mind leverage works both ways – if the investment doesn’t work out, you’ll have a nasty debt to contend with. Another option is buying real estate and using the LOC for your down payment - but, you’ll have to qualify and money is pretty tight these days.

Debt Consolidation - pay off your high-interest credit card debt with your hopefully, lower-interest LOC. You’ll save in interest charges but don’t be tempted to rack up those cards again!

I’ve got several lines of credit which are just empty and waiting for the right time to use them – thankfully, none of them have any balances. One of them is kept as my emergency fund and is hooked up directly with my bank account in case I need it. I have another one that is only to be used for investment purposes – this make it easier at tax time to keep track of any interest I’ve paid to earn investment income.

I have fairly good credit, so I’ll probably try to get as my LOC’s as I can, in case I need them.

With the market the way it is, I am biding my time, until the perfect ‘opportunity’ comes up.

Related posts:
Stocking Up On Credit