59

An emergency fund is your money, sitting in a bank, that you can use for emergency purposes. A line of credit is somebody else's money, that they've provisionally promised to let you borrow. But they can change their mind at any time.


48

People treat an emergency fund as some kind of ace-in-the-hole when it comes to financial difficulty, but it is only one of many sources of money that you can utilize. What is an emergency? First, you have to define what an emergency is. Is it a lost job? Is it an unplanned event (pregnancy, perhaps)? Is it a medical emergency? Is it the death of you ...


11

The bank will sell your debt to a collection agency, that will then follow you everywhere you go and demand payment. They will put a negative notice on your credit report preventing you from getting any new credit, and might sue you in court and take over some or all of your assets through court judgement.


11

Stop trying to make money with your emergency fund. It's purpose is to sit there idly waiting for a bad day. A day when you need that cash (liquid) not in a bank or a line-of-credit. The few dollars you might make trying to chase interest/investments with your emergency fund aren't worth it if a true emergency came up and you couldn't get to your cash in ...


9

recommend keeping some amount of money in cash as an emergency fund I see two keywords, with two interpretations here. Cash: Money on demand deposit, not tied up in term investments or anything that requires a buyer in order to liquidate. Small pieces of paper, usually with a portrait of the current/notable head of state on it, that other people will ...


8

Why can't you have both? If you do have both credit and an emergency fund, and an emergency occurs, you can draw from the line of credit first. Having debt + cash is a much more stable situation than having neither, because then you have the option to use the cash to pay off the debt, or use the cash to pay other expenses. If you just have cash, when you ...


7

It will either appear as a new revolving account or not appear at all until you use it. The main impact will likely be the initial hard-pull when you apply, and it will wear off in several months.


7

"Good debt" is very close to an oxymoron. People say student loans are "good debt," but I beg to differ. The very same "good debt" that allowed me to get an education is the very same "bad debt" that doesn't allow me to take chances in my career - meaning, I would prefer to have a 'steady' job over starting a business. (That's my perogative, of course, ...


7

Assuming you have a credit card, I recommend you use it for the purchase. It gets you two things at the very least: Gets the purchases reported as credit utilization. If you handle that correctly, you can improve your score Most card vendors give extended warranty and return policies that a retailer or manufacturer does not without extra fees. I buy all ...


5

This is fine and can definitely be done. The bank will be perfectly fine with it since you're paying interest on the money, as long as they're confident that you can repay the whole (growing) balance. Of course, there's the issue of the credit limit which you'll eventually reach and then you won't be able to pull this off any longer. Problems start when the ...


5

A Home Equity Line Of Credit (HELOC) is simply a special type of secured credit. Secured credit is credit provided to you, where the lender has some rights to an associated asset in the event that you default. In the case of a HELOC, much like a mortgage, if you default on the payment terms, the bank may be legally able to foreclose on your house, sell the ...


4

To help your score, use a credit card, and pay it in full each month. This should cost you nothing, and may get you some rewards depending on the card. Store cards don't really help the score as much as a regular credit card, and can hurt if you have too many.


4

Thanks for the link to the Financial Consumer Agency of Canada, @ChrisW.Rea. It explained in clear terms that I can withdraw money from and transfer money to the line of credit any time I want. The only monthly payment needed is the minimum payment. And yes, it may have a term after which all remaining principal + interest must be paid back in full. ...


4

There's no standard formula. You can compare the going rates on the market for unsecured LOCs and take that as the starting anchor. Unsecured lines of credit run in the US at about 8-18%. Your risk should be reflected in the rate, and I see no reason why the rate would change throughout the loan. As to the amount of principal changing? Just chose one of ...


4

Sure, you'd make an $8.33 during that first month with little extra risk. Sounds like free money, right? (Assuming no hidden fees in the fine print.) I don't know that the extra money is worth the time you will spend monitoring the account, especially after inflation claims its share of your pie. If you're going to use leverage to invest, you should ...


4

There are really only two ways that your credit limit will be increased on a standard credit card: You ask for it Most of the time this means you'll see a new hard inquiry on your credit report. Expect to see a ding of a few points from your credit score (single digits). If your credit is already good, you've been managing the account well, and haven't ...


3

Each ARM has a rate that they follow. There is also an offset from that rate so it may be prime +1 or something similar. You can see if there is movement in that base rate. Each ARM also has a maximum amount they can move in one adjustment, and a maximum rate they can have during the life of the loan. Some arms adjust every year, others adjust less often. ...


3

I can't think of a single advantage to this scheme over having an interest-bearing checking account and a traditional credit card. However, there is a big disadvantage that you missed. Overdraft protection typically comes with a per-transaction fee for every overdrawn transaction. With most banks, this fee is at least $10. Even if you find a bank that ...


3

JRM, if I were making this decision, I would choose to sell the house (assuming you are not taking a massive loss relative to its market value) and maintain the retirement savings. From a lifecycle financial planning perspective, both housing and a need to replace your income once you're no longer able to work are basic needs - as long as you are alive, you ...


3

Technically a mortgage is not a credit to buy a house but a credit that is secured against a house (in case you default in your debt the creditor gets to sell the house to recover it). So there is nothing preventing you from getting a mortgage to pay some other costs (like some holidays, or a new car, or your next business)1. Getting a mortgage to refinance ...


2

The number one reason to borrow is quite simple; when you have no other choice. The primary reason to do this is when renovations or additions must be made in a timeframe that precludes you being able to save enough money to pay cash. Harmanjd's example of a kid on the way with no space to put him is a very good hypothetical. Disaster recovery is another; ...


2

You're likely not going to get the result you desire from taking out a Personal Loan or a Line of Credit to pay for the computer and you'll pay dearly as well. When it comes to credit, utilization (the amount of actual debt you have on revolving trade lines) is negatively inverted with your actual score. You'll also pay interest when you're carrying a ...


2

I know that when I use my HELOC, there's no impact to utilization. A line of credit distinct from a credit card, should not impact either, I'd look at a site such as CreditKarma to see what your utilization looks like, and how the line of credit is treated.


2

Collateralized & Secured are interchangeable terms. Note the following two quotes from wikipedia (links below): "A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan." http://en.wikipedia.org/wiki/Secured_loan "In ...


2

Effectively whatever the issuer of the line of credit is willing to accept. Some more common options are other real estate property, vehicles, CDs or savings accounts, annuities, etc. It boils down to whatever the issuer is willing to accept and how they value the asset being used to secure the loan.


2

Let me offer what I did in a similar situation - Before refi - $480K @7.625% PMT $3400, annual interest - $36,600 ($100K in bank @ close to zero interest) Post refi - $384K @5.24% PMT $3085 (but 15 yr term) interest/yr - $20,100. Two points (a) we were banking $20K/yr or so to the cash fund, 2 good incomes, and the ability to go indefinitely on just one ...


2

If the card issuer makes a "hard pull" of your credit history, a new hard inquiry will be added to your report and your score will be affected by a few points. This may or may not have an effect on future credit applications, and will stop being a score factor in a year. However, many issuers do a "soft pull" on a limit increase request, which will not ...


2

Why not a 4th, but arguably better option? Normally with big money decisions there is always another option! Why not Cash flow the 15k? Why you wouldn't go for: Option 1 - Never reduce your emergency savings unless for true emergency. Known, upcoming college expenses is not an emergency. Also, an emergency fund isn't used as an invest, and should be kept ...


1

Usually it is called a "convenience fee", but they could call it anything they want I guess. Depending on the card issuer and state, this practice may be against the rules for the merchant to do this (although less so than before 2013)


Only top voted, non community-wiki answers of a minimum length are eligible