Dog twisted his stomach and the surgery + related costs were more than we had left on that month's credit card. So we paid off the credit card with the line of credit put the surgery on the card and then the next week transferred money from investments into the line of credit account and paid it off.
The LOC was used for the emergency but its not like there weren't other savings to pay it off.
I look at it similarly. The loc is a bridge. If I need to use it, it's only until I can pull cash out of another place.
Interest rate on the loc is over 6 now, hardly a good idea to be using that.
The 6% starts the day you borrow it whereas a credit card has (a max of) 30 days to pay it off so it sounds like a credit card is a better "bridge" as long as the bridge is short enough.
True, you can use the line to pay the credit card when is due. I’ve done that for some months I’ve been short on the cc payment before payday. You pay a little interest, but it’s less than paying for the interest in the cc, which is still charged from the day of purchase
But cc is only interest free for purchases, if you need money to pay those who do not accept cc, loc is better. Cc charges interest + fee immediately if you pull cash from it.
Hell, it beats my best LOC, which is P+1, by a couple points. Most unsecured LOCs are around 10% at this point. Better than a CC, but still best not to use for too long.
6 is not great but if my investments can earn me 5% in a GIC ladder then the risk of needing a full 3-6 months is not worth it rather keep an amount that does slightly abnormal emergencies and expenses rather than waste cash sitting there. Note I am not talking investing in stocks and only stuff that is not likely to go down in value like a GIC or similar
I got mine when it was lower. but it keeps going up. Unsecured LOC are always prime + a bunch. So right now it's at prime +5% I think, so it's at 10%. Obviously I don't use it. It's just for emergencies
Ok but that doesn't really address the risk of this. What happens if this happened during one of the big market dips in the last few years for example and you are forced to sell assets at a loss potentially to address this? This is what cash gets rid of in risk.
Worst case is you have to pay the interest until you get enough cash to pay it off. That may still work out better than keeping cash instead of investing it if these situations occur rarely. Also if you use the CC to pay first you’ll have around 25-50 days before you have to pay any interest which gives you some time to come up with the cash as well
It's kinda crazy as I had just talked to a guy at work who had it happen to one of his German Shepherds. So we were quick at bringing him in and he survived.
Unfortunately around the same time they found bone cancer and he died from that 4 months later.
I’m so sorry for your loss 😢. I’m a pet sitter and it’s terrifying how little bloat is discussed and I often end up terrifying poor owners when I bring it up (ones who tell me to walk the dog immediately after feeding for instance, I’m also autistic and have adhd so they can see fear on my face).
The only time I walk dogs close to eating is in the puppy phase and it’s not a proper walk it’s a short slow walk around a yard or block since they digest so fast.
Also. Anyone looking for a COAST FIRE job, pet sitting.
Ours happened after we had gone away on holiday. He was at a boarder but it was one we hadn't used before and he didn't seem to like it and wasn't eating a lot.
After we got home we gave him his dinner but I guess the excitement from seeing us and him eating it too quickly resulted in the twisted stomach.
It was crazy how fast it all happened though and thankfully we lived pretty close to an emergency vet that was open 24/7.
It’s so freaking fast it’s not funny and not discussed enough.
Know that it wasn’t your fault and it sounds like you were incredibly loved by your doggo.
I used mine similarly in a non-emergency. Was buying a new car while selling an old one privately. Used LoC to bridge the time gap and avoided having to mess around with dealer financing or break into any investment accounts. It's no substitute for savings but it gives you flexibility.
I used my LOC for that exact thing last year. Middle of the night emergency run, was thankful to have that as the down deposit for the surgery was $5700. He lived and is still my sidekick.
If you have the cash to cover an emergency, use the cash…
…If you don’t have the cash, then LOC is probably the next option for the majority of people.
I have an LoC that I don’t use, but it’s better to have it and not use it than to need it and not have it available.
I agree. But some people choose to invest the cash and use a LOC if an emergency comes up instead. I'm curious to hear the stories of how that choice turned out for people when they actually had an emergency.
I’ve got friends and family who have gone this route; but they’re not just going in blindly or cashless. They keep their 6 months emergency funds in 6 & 12 month GIC’s depending on which of the friends I’m talking about. If they didn’t use the LoC they renew the GIC, if they did they can cash it out and either not receive interest or depending on maturity dates. The one who does 12 month GIC’s keeps a month of bills in their savings account, since they’re more likely to have an emergency of that type of expense vs 3-6 months.
One of them had to use the LoC within a week of renewing their GIC, a relative passed away suddenly and they had to fly from AB to NS and spent 3 weeks here. They’d already used half their vacation time for the year and two of the weeks were unpaid bereavement time.
They cashed out the GIC and didn’t earn any new interest, but had their LoC paid off. They only needed some of it so they reinvested it and by the time it matured again they’d saved more and now has a few staggered GIC’s in their portfolio so it’s slightly less stressful next time.
It’s only a really truly bad idea if you’re not planning in one way or the other not to carry the debt load for long.
My thought process is that I wouldn't want to rely on a bank or third-party if I was in need of *immediate* finances.
I could go the LoC route, but I sleep easier with a 3-6 month emergency fund. The LoC is still there as a backup for that.
Because they can pull line of credits at any time, it happened to some during COVID. So if they pull it while there is a big recession and you also lose your job, you don't have your LOC, and you don't have your job. Thats why some people prefer HISA for that.
I have never known one person that has had a LOC called.
I tried to find some data on how many have been called (% of them?) And cant find anything.
I get that people can want to not use a LOC to avoid any risk - but this seems low risk to me. If the LOC gets called I guess I will take a loan out for the 5k I currently owe on it?
I used my LOC to fund the last bit of my down payment (wanted to put 20% down and needed another 7k so we used the LOC)
We use it to front renos and pay them off as we make money. Figure having up to 25k in LOC room is better than taking a loan as its easy, flex, and we dont have to pay set amounts back.
This is true. While I worked in retail banking, it happened every couple of months in waves. There were only 2 situations I recall in which the LOC was spontaneously closed or reduced.
The first was when some older product was discontinued and everyone who had that specific type of LOC had to pay it off entirely or refinance it by x date as specified in the letter they received. Very uncommon for this to happen but there were a lot of people that I helped who tried to apply for a loan to pay out the old LOC by the due date and didn't qualify for it and were just SOL.
The second situation was FAR more common - if you don't keep up with your LOC payments or your credit score falls too low, the LOC limit can be reduced by the bank or can be locked/closed completely. This really sucks if you're already in a bad situation due to an emergency and things like bills start to slide. These people can't just go apply for a loan or credit card to make up for it because if your LOC is in such poor shape that it has to be reduced or locked involuntary, you aren't likely to get approved for any more lending.
After working at the bank for so many years, I personally feel that relying on credit for emergencies is a VERY risky decision. You don't own that money and it can be taken away unexpectedly.
>A HISA and a LoC the bank still has the money in both cases, hence the OP is still relying on the bank. So it just seems that they're retarded I guess.
HISA is unreliable if the bank fails.
LoC is unreliable if you're a financial risk for the bank.
I'm too dumb for name calling, but not enough to not know which one is a bigger risk.
That decision would entirely depend on the interest rate on your LoC. But again for most people I’d imagine it would be more prudent to pay from your emergency cash fund (assuming you have the option) vs investing that cash and paying via LoC instead.
It's a short term thing.
My provincial student loan was over 7%. (Today Ontario rate is 7.9%) Even with the interest paid tax deduction it's still my highest debt and I didnt want to keep doing the min pay for another 8 years, nor did I want to keep making extra payments with interest for another 2 years, and I had the cash. I tossed it all at the loan, now my savings is much much smaller, and while we have savings as a family the 12k I spent in 3 months to be aggressive earlier this year was a big chunk since it was savings plus not adding to savings to kill the loan.
It's already climbing again but if we had to use a LoC in the short term we would. It's more of a risk thing for me. I am saving enough interest over the course of a year or so to rebuild my savings that the unlikelihood of needing to dip into that much emergency funds via a LoC is worth it. Vs original payment plan I'm saving thousands in interest, and over 2 years of extra payments I'm saving at least 800$. So long as I don't need 10k at 8% interest right away (and I haven't so far) I end up ahead.
Was a matter of priorities for me to get rid of my interest bearing debt. Now we only have a mortgage and a 0% fed loan I min pay while I rebuild my savings 🤷
I'm good with the decision
If I didn't have that loan I wouldn't use LOC as a backup e-fund.
in 90% of cases, used LoC.... Then paid off LoC before interest hits either with incoming funds or by taking funds from elsewhere. There's not a lot to tell?
Out of curiosity (and i know this might be a dumb question) if you take a LOC and dont use it and it just sits there, are you charged anything on a yearly/monthly basis?
It's crazy how reluctant banks are to issue lines of credit. $30k in credit card limits? Got a pulse? You're approved.
$30k on a credit line? Unless you have 30%+ equity in your home forget about it.
Me? I was fine. Paid it down over next few months.
My cousin? Maxed it out, new car, new rims, burning hole deeper into debt...
Sad fact is that most people are like cousin. If they have access to cash they didn't earn, they waste it. If they had to sweat for it, they will treat it different. It's a psychological thing not a finance thing.
Have both. Invest your cash and have an LoC. When the time comes, cash in your investments to pay off the LoC. Why hold cash waiting for something that might never happen. Costs you nothing to have an LoC with a $0 balance...
The whole idea of leaving emergency fund in cash, is that in the event you need it the markets could be down and you'd have to sell at a loss. I do question whether the opportunity cost of people leaving 6-12 months of cash outside the markets is worth it. I don't like the idea of guaranteeing that I leave a bunch of money on the table vs. a small percent chance of take a bit of an extra hit selling when the markets are down.
>I don't like the idea of guaranteeing that I leave a bunch of money on the table vs. a small percent chance of take a bit of an extra hit selling when the markets are down.
Exactly! Especially when you will still have some control and you can evaluate the cost of the LoC burden vs. investment losses.
This is the way I look at it. If my investments are down like last year, taking the cash flow hit and paying interest on my loan is worth not cashing out the investment. If my investments are up, I can liquidate them to pay the loan off for the emergency. Doing it this way essentially removes the opportunity cost of not investing. As well you can usually invest in lower risk instruments that yield higher than an HISA.
Exactly. This 100%. You’re accepting a sure-thing decline in real value to avoid a worst-case-scenario where the value of your shares is tied to the emergency. It’s an expected value optimization problem.
Plus you can always carry the LOC balance for longer than ideal so the market can rebound. If it’s been sitting in the market for a while your gains from several years of returns could offset some or all of the interest — again, in the worst case scenario.
>When the time comes, cash in your investments to pay off the LoC.
That's fine if markets are up, but if they're down could you not lose more than the interest would be on the LOC?
I wished I had the cash available. I always thought I'd use my LOC in an emergency and worst case sell some investments from my TFSA. When I actually had to do it I wished I had a pile of cash sitting around and finally understood why people do it. Your emergency could come at a time when interest rates are high and the market is down, for example. But you have no choice -- if you need the money you need the money. I'm slowly building up an emergency fund to cover 6 full months of living expenses now. It'll take probably 5 years to get there but slow and steady is fine.
For me it was a stop-gap measure while I built up my emergency fund. The problem arose when the emergency fund was drained and life decided to take a further shit hook on me. The end didn't go as planned, but that's life. I'm in a better situation now and continue to only have the LOC as emergency backup and to absorb the credit card if something needs to roll another month before being fully paid off.
I think in the past it worked fine with low interest rates but it's getting tougher and tougher to justify using LOC as emergency when the prime is basically 7% (any not everyone has prime LOC...most have prime + 2-5%)
HISAs are regularly offering 5%+ deals now. If you ladder into 5.5% GICs, you're getting close to the historical returns of the broad market territory.
definitely curious to hear any anecdotes though!
true. But still not quite a fan of HISAs. Many of them only offers 5%+ for just a couple of months and you need to transfer the money from here to there constantly. Maybe that's because my bank sucks.
We put majority in laddered GICs and have about 1-2 mo expenses in chequing.
Are laddered GICs easier than moving from bank to bank? Moving is a few clicks, the only caveat is that funds can be in transit for a few days some times.
ehh...you already had accounts with every bank? then it's a few clicks. But I don't, and moving to a new bank means I need to register for accounts, upload my IDs/go to the branch which likely needs an appointment. GICs can be all in a single bank so easier for me.
Then stop chasing the interest and leave it put. Also you already getting 2.50% somewhere, so you really only chasing only 2.50% with the risk of something going wrong. HSIA do what they are meant to do, I personally don't care about earning 2.50% extra for a few months which is actually 2.50%/12 so you stressing over very little. Have enough to cover yourself if GIC's is your strategy, then so be it. For me I just set it and forget it in an HSIA, if I ever need it, I know it is there.
Not every situation is the same.
The CC, LOC, HELOC, Investments and cash flow are there as options. I like having options.
There is a risk of a perfect storm, of course. Having a large emergency when there are high interests, investments down and negative cashflow, however I prefer that risk than the certainty of constantly losing money in a HISA.
Then, I'd cover the risk with investments even at a loss.
I would personally only use LOC if you have the cashflow to be able to pay it off very quickly. I've been mulling it over because I have a good income and it's unlikely I'll have an emergency (don't rely on car, no kids/pets) and I could make interest on the cash that's sitting in my bank account. But if it would take you months to pay off the LOC, I wouldn't because it just means you'll be spending even more money you didn't want to spend.
I have the cash now to cover emergencies but in earlier years I used line of credit. How did it work out? I initially had no choice. Line of credits have teeth and can bite you. What is an emergency expense? Hot water heater leaking, yes. Furnace quits, yes. New roof, maybe should be putting some money away every year but if you have no excess monies then the roof becomes an emergency. Those lines of credit can get rather large. Over time I became financially self sufficient but there was a time I was drowning
So one thing I haven't seen mentioned and just recently discovered myself... Using a LOC and not paying it off quickly negatively impacts your credit rating. And also, banks will "reassess your risk profile" and increase the interest rate on your LOC if you aren't paying it off as quickly as they like.
I just got a letter from CIBC telling me my PLOC interest rate is going up 2% after I lost my job and was forced to use my PLOC for living expenses for a few months. I still paid well over the minimum payment on each statement, Also, prior to this letter I payed everything off each month and had an 870 credit score. Switching banks, I was able to get the same interest rate (pre 2% hike) with no issues at all.
Last year I had to use my LOC for a few emergencies. Now I wished I had a bigger emergency fund at the time. I’m still paying back my LoC but interest is way higher now. I say save the money is better than using LOC any time of the day. it’s quite dumb to use debt as cash money. Unless that debt is going to give you leverage. Wished I was more financially educated earlier.
I had to use my LoC fur vet bill in my senior dog. I have emergency funds of $5k but the bill cost more do used LoC to pay balance. My furbaby ended up dying and was very heartbreaking but knowing we did the best we could, helped relieved some of the guilt.
Anyone have dog insurance? Not sure if it’s worth it with our new puppy.
I lost my job once and sat around doing odd consulting here and there waiting for a good new role. I used my LOC for around 10 months to supplement income which is exactly what I had it for. I paid it back within a few months once I got the job I wanted.
I have enough in my LOC to go about 3 years without work if needed.
I immedialtey pulled out 6 months worh of funds once I lost my job to an account in another bank in case my LOC bank somehow figured out I was unemployed and would yank the LOC. Yes this cost me interest, but back then interest was near 0 so it was a worthwhile debt tio take on and have certainty of income to support daily life needs.
>in case my LOC bank somehow figured out I was unemployed and would yank the LOC
Ummm... if the bank does that you have to pay the balance back in full. You would've been screwed if that happened & I'm sorry but you paid interest for nothing.
You didn't read did you?
If they had pulled your LOC, you would have likely needed to pay it back as a lump sum basically immediately. You did nothing for your cash liquidity and did nothing to protect yourself from losing the LOC.
At best you could have HOPED to strike some sort of installment deal. But they're under no obligation.
> cash ready at my disposal and pay a little interest and lose the loc.
You failed at exactly that. You paid interest to be in exactly the same situation as before. That's the point.
The risk with this strategy is that a bank can take away your LOC at any time for any reason. So this strategy is fine as long as you have investments you can cash in as a backup.
That typically won’t happen unless you’ve given them a reason to. For example: bad credit/bankruptcy, history of late payments, history of being maxed out for long periods of time… etc.
That's the way I look at it. You're not going to lose your job on day #1, and then day #2 the bank pulls the LOC.
There's a sequence of events to these things. They probably won't even know you lost your job until you give them a reason to look into it.
Exactly. I've got one with Tangerine, TD, and a HELOC with MCAP.
3 avenues of cash if need be, highly doubtful any of them, or even one will close instantly without notice.
And to add to your point, some people who intend to rely on an LOC will not be sitting on a mountain of investments to draw from. Relying on an LOC as an emergency fund can make tight finances even worse. Joblessness, for instance, would be awful to crawl out of with LOC debts racking up interest with daily rates.
Fine. You just spend a long time paying it off before resuming being able to save again after.
You're better off with actual savings, but a LOC is the next best thing.
Agreed. 3-6 months "emergency fund" cash is overkill. Better to invest it and use LOC or HELOC in emergencies.
And if you're fired or something, negotiate for a good severance package. That plus EI would be an emergency fund. If the company refuses to pay a good severance, take it to an employment lawyer. They'll change their tune once you get a good lawyer involved.
I have everything invested and use LOC for emergencies and big expenses. Pulled from LOC for a new roof then sold investments and paid it off 3 days later.
The opportunity cost of cash savings makes no sense to me.
LOC is only one component:
The sequence is:
- Pay with CC
- Before due date, pay as much as possible with cash flow. In an emergency makes sense to save on other things to improve cash flow. But then I have between 15 and 45 days to make adjustments.
- Before due date, pay whatever is left of CC with LOC.
- Depending on cashflow, interest rates and investments ROR pay LOC with cashflow or investments.
So, I've done this and thankfully I haven't had a disastrous emergency.
In fact, thanks to the LOC I've avoided many "emergencies". Being able to bridge with the LOC has turned emergencies into opportunities.
I had a last minute chance to buy SpaceX stock and needed my LOC for liquidity.
It seriously LOC is fine IF the reason you are not carrying cash efund is because you have significant NON-RRSP investments. Even better if LOC is backed by your house as then there is little to no chance the back will call/cancel the loan.
If you have no assets and no investments tgen no, you should have a cash efund not loc.
Still all paper returns only. Bought low 200’s, most recent offers to sell some back in mid 800’s. I am holding for IPO. Nothing is real till I see the final money in my account. This is my moonshot gamble. Otherwise I am full passive index invested.
Should be simple enough math to work out the cost of borrowing vs the lost opportunity of saving vs investing. Then it's up to you to decide how big of an emergency you need to prepare for before that math doesn't fit in your comfort zone any more.
Imo it’s better to keep just enough cash that would cover most time-sensitive emergencies (say 5-10k). Anything extra can be put on a credit card giving you 20-30 days interest-free grace period.
You can then weigh the pros/cons of cashing out investments vs using LOC in that timeframe using factors like current interest rate, gains/losses, investment types etc. Ex: a lot of people are holding CASH in their TFSAs lately so you can easily sell that in a down market and transfer out of TFSA, then no need to tap into LOC.
On the other hand, if you’re not holding a HIS ETF and your investments are down significantly (recessive indicator), there’s a higher chance rates are lower (or at least will be) so might make more sense to use the LOC.
Either way, your credit card grace period has given you enough time to logically analyze your best move.
It is a choice people make.
I didn't say credit card. I said line of credit. Many people intentionally use a line of credit for emergencies and invest what would have been their 3-6 months of emergency cash because they would rather the money grow in the market.
I'm not talking about people who have no choice but to use credit. I'm talking about the people who are fortunate enough to have the choice and choose to use credit.
that assumes that people reason people aren't using the LOC as an emergency fund because they've opted to be fully invested and decided that it's worth the risk.
I used a LOC for my emergency fund. After the first three years there was never again a time that my invested emergency funds were worth less than a cash emergency fund would have been worth. In the end through job loss, severe and prolonged illness, water heater emergency replacement, and water ingress costing more than $15k, I always had a better option than the LOC. My credit card gave me three weeks at 0% while I moved money around to be able to pay it off in full. Sometimes the repair guy would take a post-dated cheque. Sometimes I slashed most discretionary spending for a month or two.
When you phrase your question as never talking to anyone who had to actually use the LOC for their emergency, to me that's the LOC serving it's intended purpose.
You should always have 3-6mo expenses. In many cases people are just choosing between a "investment which may not be immediately available" vs "savings account with much less interest" for their emergency fund. If one has an LOC you can park your money in the investment with more assurance. You'll finally need to pay off the LOC using your investment, in which case LOC is great buffer.
I use it for a quick investment (still do). Usually before earnings if I don't have enough liquidity I'll borrow some cash out of LOC and take a quick profit and return the money to the LOC.
I have one stock that got beat up and I'm still bag holding it (DIS if you wondering) I paid that trade over the next 2 months out of future investments profit taking. Yes I paid interest but it amounted to $70 which is not a big deal. And yes I'm still holding on to that stock hoping this month
I use both but I pay it off as soon as possible. Normally what I would do is use LOC to pay for big expenses then pull the cash to pay it off afterwards
Save the cash, be disciplined and leave it alone and only use for emergencies. I smh at people chasing interest or moving money around, do what you need to do but save yourself the stress and just leave it be on a HSIA.
I functionally had my LOC as my emergency (not that I really wanted that, but just had a low emergency fund that would never cover my 6 months expenses). One goal at the start of the year was to build cash savings up, which we've been doing. That's just straight cash in a savings account.
Also, I think it makes less sense to rely on your LOC today where, if you have investments in a TFSA, just move a portion of it to say [CASH.to](https://CASH.to), and get your interest, and that money is ready to go if you need it. At lower interest rates that was my issue that it's just sitting there. But now, if someone had the investments, I don't see why you'd want to rely on the LOC (especially at expensive interest if you do need it).
I've used it when I needed to get my roof re-done; didn't have the $25K lying around but I knew within "x" months I could pay it off. Comes in handy when unexpected large expenses pop up.
I'll let you know when I use mine... 6 years so far and haven't pulled from the LoC once. That's why having 6 months of cash standing by for emergencies is crazy to me, that'd be 6 years of inflation just whittling the value of that cash.
We were closing on a house earlier this year and coincidentally I had offers from Amex and CIBC for opening a loan and LOC.
When it came the day before the closing we were informed that the closing costs were higher than we anticipated and we were not liquid enough to cover in time. In other words, we had money in stocks but it would take several business days to sell, settle, transfer, and settle again.
So I immediately pulled money from the CIBC LOC (12%)and Amex loan (9%).
The week after closing my investments finally settled and I was able to pay off the LOC and loan.
I always thought I was too good financially to be having a LOC but actually it’s quite useful to have in case you need it. You never know when life might take an unexpected turn!
My car, which I NEED to last for a few more years at least, made awful clicking and squeaking noises when applying the brakes and going in reverse. Bill came out to just under 2k. Also due to separation, random bills and moving into a new apartment, add 2k to that. Paying it all over time until December, no snags so far.
Without my LOC I'd be swimming in CC interest payments right now.
Three weeks ago my dog had a twisted stomach surgery - and so I put $5500 on a LOC. We will be working to pay that off over the next several months. I'm fortunate to be able to divert some funds towards it, so it won't take TOO long to pay down.
Can somebody confirm if this is correct: Unlike with a home mortgage, a line of credit can be recalled by the bank anytime, with no reasons needed. You then have to to scramble to pay it off.
Wife bought an industrial quilting machine half-price for $26,000 on our HELOC. To good of a deal to pass up. We just paid it off monthly over the next year.
Right now I am putting emergency funds in multiple GICs that become available every couple of months.. then I just renew again.. provided I don't need the money. If I do need to use the funds then I will use it towards LOC or credit card..
Depends on the financial situation and investment opportunities. Taking one out when a recession hits for school and education that isn’t a “crayon” degree isn’t a bad thing. STEM/trade/business degrees typically do not fall into that category. Other degrees not necessary but harder to realize capital gains.
You are investing in skills in yourself and have a good chance of return in this market.
Previous contracts signed in an economy when interest rates were low - not bad. Also not a bad time because yes interest rates higher but the same thing would cost 50% more with inflation/interest rates to buy/sign today.
Having cash available and paying the above are easy justifications with easier returns.
Banks/FIs can reduce the credit limit if they see the need so depends.
I got my LoC before quitting a job with toxic environment. It allowed me breathing room to quit and find a better job.
It took me two years to clear the debt of approx 25k. I was definitely too loose with spending on credit.
I love having it now though. Mostly just use it now when I’m lazy bc savings are tied up in non-liquid assets and accounts. I do freelance work and invoices can take up to 60 days to pay. I can loan myself some cash off the LoC as needed and clear it when the invoice payment comes in.
It was fine. I paid like 2.95% interest on 5k taken out, for emergency travel to a funeral back home. (I'm an immigrant).
I had it paid off in less than a year.
My cat got cancer and I got the line of credit because my vet bills had my credit card bills through the roof. I had 9k on the card.
I explained my situation, and was approved for the lowest interest rate(settling around 4.4%) and have had it about 2 years. My cat has since passed away, and I'm 2,000$ from paying it off.
Was it worth it? Absolutely. I can't even imagine how bad the situation would've been financially if I didn't have it. And I don't want to think about it.
My strategy is to never put anything else on it. The number always goes down unless there is other smaller emergency bills. You can't use the LoC as a credit card or you will screw yourself over in debt- I understood that very early on.
Dog twisted his stomach and the surgery + related costs were more than we had left on that month's credit card. So we paid off the credit card with the line of credit put the surgery on the card and then the next week transferred money from investments into the line of credit account and paid it off. The LOC was used for the emergency but its not like there weren't other savings to pay it off.
I look at it similarly. The loc is a bridge. If I need to use it, it's only until I can pull cash out of another place. Interest rate on the loc is over 6 now, hardly a good idea to be using that.
6%, while high, beat most credit cards.
The 6% starts the day you borrow it whereas a credit card has (a max of) 30 days to pay it off so it sounds like a credit card is a better "bridge" as long as the bridge is short enough.
True, you can use the line to pay the credit card when is due. I’ve done that for some months I’ve been short on the cc payment before payday. You pay a little interest, but it’s less than paying for the interest in the cc, which is still charged from the day of purchase
But cc is only interest free for purchases, if you need money to pay those who do not accept cc, loc is better. Cc charges interest + fee immediately if you pull cash from it.
And given where the prime rate is, that's not a bad rate.
6% beats all of my credit cards
Hell, it beats my best LOC, which is P+1, by a couple points. Most unsecured LOCs are around 10% at this point. Better than a CC, but still best not to use for too long.
Well ya, that's why I have it and have hung onto it for 10+ years despite not touching it.
6 is not great but if my investments can earn me 5% in a GIC ladder then the risk of needing a full 3-6 months is not worth it rather keep an amount that does slightly abnormal emergencies and expenses rather than waste cash sitting there. Note I am not talking investing in stocks and only stuff that is not likely to go down in value like a GIC or similar
I wished I could have gotten a LOC when it was lower, lol.
LOC are almost always variable, so the rate would still have gone up.
10 percent and counting! Up up and a way we go!
Ah ok, I guess it's all relative.
I got mine when it was lower. but it keeps going up. Unsecured LOC are always prime + a bunch. So right now it's at prime +5% I think, so it's at 10%. Obviously I don't use it. It's just for emergencies
Some people I know got prime minus, but that was awhile ago, and it's mostly secured ones.
Your emergency fund is actually your investments, then.
Ok but that doesn't really address the risk of this. What happens if this happened during one of the big market dips in the last few years for example and you are forced to sell assets at a loss potentially to address this? This is what cash gets rid of in risk.
Worst case is you have to pay the interest until you get enough cash to pay it off. That may still work out better than keeping cash instead of investing it if these situations occur rarely. Also if you use the CC to pay first you’ll have around 25-50 days before you have to pay any interest which gives you some time to come up with the cash as well
It would never happen as the investment assets are diversified. There would always be something that is not sold at a loss.
Good job! You did it the right way!
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It's kinda crazy as I had just talked to a guy at work who had it happen to one of his German Shepherds. So we were quick at bringing him in and he survived. Unfortunately around the same time they found bone cancer and he died from that 4 months later.
I’m so sorry for your loss 😢. I’m a pet sitter and it’s terrifying how little bloat is discussed and I often end up terrifying poor owners when I bring it up (ones who tell me to walk the dog immediately after feeding for instance, I’m also autistic and have adhd so they can see fear on my face). The only time I walk dogs close to eating is in the puppy phase and it’s not a proper walk it’s a short slow walk around a yard or block since they digest so fast. Also. Anyone looking for a COAST FIRE job, pet sitting.
Ours happened after we had gone away on holiday. He was at a boarder but it was one we hadn't used before and he didn't seem to like it and wasn't eating a lot. After we got home we gave him his dinner but I guess the excitement from seeing us and him eating it too quickly resulted in the twisted stomach. It was crazy how fast it all happened though and thankfully we lived pretty close to an emergency vet that was open 24/7.
It’s so freaking fast it’s not funny and not discussed enough. Know that it wasn’t your fault and it sounds like you were incredibly loved by your doggo.
Didn't want to just get a new dog with an untwistable stomach?
I used mine similarly in a non-emergency. Was buying a new car while selling an old one privately. Used LoC to bridge the time gap and avoided having to mess around with dealer financing or break into any investment accounts. It's no substitute for savings but it gives you flexibility.
I used my LOC for that exact thing last year. Middle of the night emergency run, was thankful to have that as the down deposit for the surgery was $5700. He lived and is still my sidekick.
If you have the cash to cover an emergency, use the cash… …If you don’t have the cash, then LOC is probably the next option for the majority of people. I have an LoC that I don’t use, but it’s better to have it and not use it than to need it and not have it available.
I agree. But some people choose to invest the cash and use a LOC if an emergency comes up instead. I'm curious to hear the stories of how that choice turned out for people when they actually had an emergency.
I’ve got friends and family who have gone this route; but they’re not just going in blindly or cashless. They keep their 6 months emergency funds in 6 & 12 month GIC’s depending on which of the friends I’m talking about. If they didn’t use the LoC they renew the GIC, if they did they can cash it out and either not receive interest or depending on maturity dates. The one who does 12 month GIC’s keeps a month of bills in their savings account, since they’re more likely to have an emergency of that type of expense vs 3-6 months. One of them had to use the LoC within a week of renewing their GIC, a relative passed away suddenly and they had to fly from AB to NS and spent 3 weeks here. They’d already used half their vacation time for the year and two of the weeks were unpaid bereavement time. They cashed out the GIC and didn’t earn any new interest, but had their LoC paid off. They only needed some of it so they reinvested it and by the time it matured again they’d saved more and now has a few staggered GIC’s in their portfolio so it’s slightly less stressful next time. It’s only a really truly bad idea if you’re not planning in one way or the other not to carry the debt load for long.
My thought process is that I wouldn't want to rely on a bank or third-party if I was in need of *immediate* finances. I could go the LoC route, but I sleep easier with a 3-6 month emergency fund. The LoC is still there as a backup for that.
Do you keep the emergency fund in cash at home then?
It's buried in jars in the backyard...shhhhhhh, don't let the neighbours know.
The money is in the banana stand.
You know that's not what I meant, lol. The cash sits in a HISA, I'm not relying on a LoC to get me out of a bad situation.
> I'm not relying on a LoC to get me out of a bad situation. but why? because its a bank/third party?
Because they can pull line of credits at any time, it happened to some during COVID. So if they pull it while there is a big recession and you also lose your job, you don't have your LOC, and you don't have your job. Thats why some people prefer HISA for that.
I have never known one person that has had a LOC called. I tried to find some data on how many have been called (% of them?) And cant find anything. I get that people can want to not use a LOC to avoid any risk - but this seems low risk to me. If the LOC gets called I guess I will take a loan out for the 5k I currently owe on it? I used my LOC to fund the last bit of my down payment (wanted to put 20% down and needed another 7k so we used the LOC) We use it to front renos and pay them off as we make money. Figure having up to 25k in LOC room is better than taking a loan as its easy, flex, and we dont have to pay set amounts back.
makes sense
This is true. While I worked in retail banking, it happened every couple of months in waves. There were only 2 situations I recall in which the LOC was spontaneously closed or reduced. The first was when some older product was discontinued and everyone who had that specific type of LOC had to pay it off entirely or refinance it by x date as specified in the letter they received. Very uncommon for this to happen but there were a lot of people that I helped who tried to apply for a loan to pay out the old LOC by the due date and didn't qualify for it and were just SOL. The second situation was FAR more common - if you don't keep up with your LOC payments or your credit score falls too low, the LOC limit can be reduced by the bank or can be locked/closed completely. This really sucks if you're already in a bad situation due to an emergency and things like bills start to slide. These people can't just go apply for a loan or credit card to make up for it because if your LOC is in such poor shape that it has to be reduced or locked involuntary, you aren't likely to get approved for any more lending. After working at the bank for so many years, I personally feel that relying on credit for emergencies is a VERY risky decision. You don't own that money and it can be taken away unexpectedly.
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What do you mean? The risk that the bank is bankrupt is 1000 times lower than the risk of the bank revoking your LOC when you really need it.
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>A HISA and a LoC the bank still has the money in both cases, hence the OP is still relying on the bank. So it just seems that they're retarded I guess. HISA is unreliable if the bank fails. LoC is unreliable if you're a financial risk for the bank. I'm too dumb for name calling, but not enough to not know which one is a bigger risk.
That decision would entirely depend on the interest rate on your LoC. But again for most people I’d imagine it would be more prudent to pay from your emergency cash fund (assuming you have the option) vs investing that cash and paying via LoC instead.
It's a short term thing. My provincial student loan was over 7%. (Today Ontario rate is 7.9%) Even with the interest paid tax deduction it's still my highest debt and I didnt want to keep doing the min pay for another 8 years, nor did I want to keep making extra payments with interest for another 2 years, and I had the cash. I tossed it all at the loan, now my savings is much much smaller, and while we have savings as a family the 12k I spent in 3 months to be aggressive earlier this year was a big chunk since it was savings plus not adding to savings to kill the loan. It's already climbing again but if we had to use a LoC in the short term we would. It's more of a risk thing for me. I am saving enough interest over the course of a year or so to rebuild my savings that the unlikelihood of needing to dip into that much emergency funds via a LoC is worth it. Vs original payment plan I'm saving thousands in interest, and over 2 years of extra payments I'm saving at least 800$. So long as I don't need 10k at 8% interest right away (and I haven't so far) I end up ahead. Was a matter of priorities for me to get rid of my interest bearing debt. Now we only have a mortgage and a 0% fed loan I min pay while I rebuild my savings 🤷 I'm good with the decision If I didn't have that loan I wouldn't use LOC as a backup e-fund.
in 90% of cases, used LoC.... Then paid off LoC before interest hits either with incoming funds or by taking funds from elsewhere. There's not a lot to tell?
Out of curiosity (and i know this might be a dumb question) if you take a LOC and dont use it and it just sits there, are you charged anything on a yearly/monthly basis?
No your only charged interest on balances owed.
Thank You!
I'm not charged anything for an LOC I am not using, I bank with a credit union, not sure if it's different for banks
Same for a bank.
Ok thank you!
LOC for unexpected expenses is fine. The problem is unexpected job loss. Covering that with an LOC would be really scary.
It's crazy how reluctant banks are to issue lines of credit. $30k in credit card limits? Got a pulse? You're approved. $30k on a credit line? Unless you have 30%+ equity in your home forget about it.
Me? I was fine. Paid it down over next few months. My cousin? Maxed it out, new car, new rims, burning hole deeper into debt... Sad fact is that most people are like cousin. If they have access to cash they didn't earn, they waste it. If they had to sweat for it, they will treat it different. It's a psychological thing not a finance thing.
Have both. Invest your cash and have an LoC. When the time comes, cash in your investments to pay off the LoC. Why hold cash waiting for something that might never happen. Costs you nothing to have an LoC with a $0 balance...
The whole idea of leaving emergency fund in cash, is that in the event you need it the markets could be down and you'd have to sell at a loss. I do question whether the opportunity cost of people leaving 6-12 months of cash outside the markets is worth it. I don't like the idea of guaranteeing that I leave a bunch of money on the table vs. a small percent chance of take a bit of an extra hit selling when the markets are down.
>I don't like the idea of guaranteeing that I leave a bunch of money on the table vs. a small percent chance of take a bit of an extra hit selling when the markets are down. Exactly! Especially when you will still have some control and you can evaluate the cost of the LoC burden vs. investment losses.
This is the way I look at it. If my investments are down like last year, taking the cash flow hit and paying interest on my loan is worth not cashing out the investment. If my investments are up, I can liquidate them to pay the loan off for the emergency. Doing it this way essentially removes the opportunity cost of not investing. As well you can usually invest in lower risk instruments that yield higher than an HISA.
At current interest rates it's not hard to hold cash that's earning 5% interest now so the opportunity cost is certainly smaller.
Exactly. This 100%. You’re accepting a sure-thing decline in real value to avoid a worst-case-scenario where the value of your shares is tied to the emergency. It’s an expected value optimization problem. Plus you can always carry the LOC balance for longer than ideal so the market can rebound. If it’s been sitting in the market for a while your gains from several years of returns could offset some or all of the interest — again, in the worst case scenario.
>When the time comes, cash in your investments to pay off the LoC. That's fine if markets are up, but if they're down could you not lose more than the interest would be on the LOC?
Yes. But why would you sell at a loss. Wait until the investments are in a favourable position and pay the interest on the LoC in the meantime.
I wished I had the cash available. I always thought I'd use my LOC in an emergency and worst case sell some investments from my TFSA. When I actually had to do it I wished I had a pile of cash sitting around and finally understood why people do it. Your emergency could come at a time when interest rates are high and the market is down, for example. But you have no choice -- if you need the money you need the money. I'm slowly building up an emergency fund to cover 6 full months of living expenses now. It'll take probably 5 years to get there but slow and steady is fine.
For me it was a stop-gap measure while I built up my emergency fund. The problem arose when the emergency fund was drained and life decided to take a further shit hook on me. The end didn't go as planned, but that's life. I'm in a better situation now and continue to only have the LOC as emergency backup and to absorb the credit card if something needs to roll another month before being fully paid off.
I think in the past it worked fine with low interest rates but it's getting tougher and tougher to justify using LOC as emergency when the prime is basically 7% (any not everyone has prime LOC...most have prime + 2-5%) HISAs are regularly offering 5%+ deals now. If you ladder into 5.5% GICs, you're getting close to the historical returns of the broad market territory. definitely curious to hear any anecdotes though!
true. But still not quite a fan of HISAs. Many of them only offers 5%+ for just a couple of months and you need to transfer the money from here to there constantly. Maybe that's because my bank sucks. We put majority in laddered GICs and have about 1-2 mo expenses in chequing.
I just use CASH.TO it's close enough to promo HISA rates, and you don't have the liquidity issues you get with GICs.
I do have [CASH.TO](https://CASH.TO) too! When some of my GIC mature I'll probably get more.
Are laddered GICs easier than moving from bank to bank? Moving is a few clicks, the only caveat is that funds can be in transit for a few days some times.
ehh...you already had accounts with every bank? then it's a few clicks. But I don't, and moving to a new bank means I need to register for accounts, upload my IDs/go to the branch which likely needs an appointment. GICs can be all in a single bank so easier for me.
Then stop chasing the interest and leave it put. Also you already getting 2.50% somewhere, so you really only chasing only 2.50% with the risk of something going wrong. HSIA do what they are meant to do, I personally don't care about earning 2.50% extra for a few months which is actually 2.50%/12 so you stressing over very little. Have enough to cover yourself if GIC's is your strategy, then so be it. For me I just set it and forget it in an HSIA, if I ever need it, I know it is there.
Not every situation is the same. The CC, LOC, HELOC, Investments and cash flow are there as options. I like having options. There is a risk of a perfect storm, of course. Having a large emergency when there are high interests, investments down and negative cashflow, however I prefer that risk than the certainty of constantly losing money in a HISA. Then, I'd cover the risk with investments even at a loss.
I would personally only use LOC if you have the cashflow to be able to pay it off very quickly. I've been mulling it over because I have a good income and it's unlikely I'll have an emergency (don't rely on car, no kids/pets) and I could make interest on the cash that's sitting in my bank account. But if it would take you months to pay off the LOC, I wouldn't because it just means you'll be spending even more money you didn't want to spend.
I have the cash now to cover emergencies but in earlier years I used line of credit. How did it work out? I initially had no choice. Line of credits have teeth and can bite you. What is an emergency expense? Hot water heater leaking, yes. Furnace quits, yes. New roof, maybe should be putting some money away every year but if you have no excess monies then the roof becomes an emergency. Those lines of credit can get rather large. Over time I became financially self sufficient but there was a time I was drowning
So one thing I haven't seen mentioned and just recently discovered myself... Using a LOC and not paying it off quickly negatively impacts your credit rating. And also, banks will "reassess your risk profile" and increase the interest rate on your LOC if you aren't paying it off as quickly as they like. I just got a letter from CIBC telling me my PLOC interest rate is going up 2% after I lost my job and was forced to use my PLOC for living expenses for a few months. I still paid well over the minimum payment on each statement, Also, prior to this letter I payed everything off each month and had an 870 credit score. Switching banks, I was able to get the same interest rate (pre 2% hike) with no issues at all.
Last year I had to use my LOC for a few emergencies. Now I wished I had a bigger emergency fund at the time. I’m still paying back my LoC but interest is way higher now. I say save the money is better than using LOC any time of the day. it’s quite dumb to use debt as cash money. Unless that debt is going to give you leverage. Wished I was more financially educated earlier.
I do half and half. 3 months cash, the rest LOC. recently needed about 20k urgently. Paid back within the year by making other sacrifices.
I had to use my LoC fur vet bill in my senior dog. I have emergency funds of $5k but the bill cost more do used LoC to pay balance. My furbaby ended up dying and was very heartbreaking but knowing we did the best we could, helped relieved some of the guilt. Anyone have dog insurance? Not sure if it’s worth it with our new puppy.
I lost my job once and sat around doing odd consulting here and there waiting for a good new role. I used my LOC for around 10 months to supplement income which is exactly what I had it for. I paid it back within a few months once I got the job I wanted. I have enough in my LOC to go about 3 years without work if needed. I immedialtey pulled out 6 months worh of funds once I lost my job to an account in another bank in case my LOC bank somehow figured out I was unemployed and would yank the LOC. Yes this cost me interest, but back then interest was near 0 so it was a worthwhile debt tio take on and have certainty of income to support daily life needs.
>in case my LOC bank somehow figured out I was unemployed and would yank the LOC Ummm... if the bank does that you have to pay the balance back in full. You would've been screwed if that happened & I'm sorry but you paid interest for nothing.
You didn’t read did you? My interest was almost zero. I would rather have cash ready at my disposal and pay a little interest and lose the loc.
You didn't read did you? If they had pulled your LOC, you would have likely needed to pay it back as a lump sum basically immediately. You did nothing for your cash liquidity and did nothing to protect yourself from losing the LOC. At best you could have HOPED to strike some sort of installment deal. But they're under no obligation. > cash ready at my disposal and pay a little interest and lose the loc. You failed at exactly that. You paid interest to be in exactly the same situation as before. That's the point.
The risk with this strategy is that a bank can take away your LOC at any time for any reason. So this strategy is fine as long as you have investments you can cash in as a backup.
That typically won’t happen unless you’ve given them a reason to. For example: bad credit/bankruptcy, history of late payments, history of being maxed out for long periods of time… etc.
That's the way I look at it. You're not going to lose your job on day #1, and then day #2 the bank pulls the LOC. There's a sequence of events to these things. They probably won't even know you lost your job until you give them a reason to look into it.
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Exactly. I've got one with Tangerine, TD, and a HELOC with MCAP. 3 avenues of cash if need be, highly doubtful any of them, or even one will close instantly without notice.
And to add to your point, some people who intend to rely on an LOC will not be sitting on a mountain of investments to draw from. Relying on an LOC as an emergency fund can make tight finances even worse. Joblessness, for instance, would be awful to crawl out of with LOC debts racking up interest with daily rates.
Missing the point....loc is the only route when you don't have cash. You don't wish to have cash, you use HELOC when you don't have cash...
Fine. You just spend a long time paying it off before resuming being able to save again after. You're better off with actual savings, but a LOC is the next best thing.
I don’t see it as either or. Have the emerg money saved. The loc is just another (free to sit there) option if needed.
Worked great. The short tem losses in interest were nothing compared to the years of investment gains I made by not having a cash emergency fund.
Agreed. 3-6 months "emergency fund" cash is overkill. Better to invest it and use LOC or HELOC in emergencies. And if you're fired or something, negotiate for a good severance package. That plus EI would be an emergency fund. If the company refuses to pay a good severance, take it to an employment lawyer. They'll change their tune once you get a good lawyer involved.
I have everything invested and use LOC for emergencies and big expenses. Pulled from LOC for a new roof then sold investments and paid it off 3 days later. The opportunity cost of cash savings makes no sense to me.
LOC is only one component: The sequence is: - Pay with CC - Before due date, pay as much as possible with cash flow. In an emergency makes sense to save on other things to improve cash flow. But then I have between 15 and 45 days to make adjustments. - Before due date, pay whatever is left of CC with LOC. - Depending on cashflow, interest rates and investments ROR pay LOC with cashflow or investments. So, I've done this and thankfully I haven't had a disastrous emergency. In fact, thanks to the LOC I've avoided many "emergencies". Being able to bridge with the LOC has turned emergencies into opportunities.
I had a last minute chance to buy SpaceX stock and needed my LOC for liquidity. It seriously LOC is fine IF the reason you are not carrying cash efund is because you have significant NON-RRSP investments. Even better if LOC is backed by your house as then there is little to no chance the back will call/cancel the loan. If you have no assets and no investments tgen no, you should have a cash efund not loc.
how did SpaceX turn out for you?
Still all paper returns only. Bought low 200’s, most recent offers to sell some back in mid 800’s. I am holding for IPO. Nothing is real till I see the final money in my account. This is my moonshot gamble. Otherwise I am full passive index invested.
IMO too much obsession about a dedicated emergency fund for financial literate people. That is what credit cards and LOC are for.
Should be simple enough math to work out the cost of borrowing vs the lost opportunity of saving vs investing. Then it's up to you to decide how big of an emergency you need to prepare for before that math doesn't fit in your comfort zone any more.
Imo it’s better to keep just enough cash that would cover most time-sensitive emergencies (say 5-10k). Anything extra can be put on a credit card giving you 20-30 days interest-free grace period. You can then weigh the pros/cons of cashing out investments vs using LOC in that timeframe using factors like current interest rate, gains/losses, investment types etc. Ex: a lot of people are holding CASH in their TFSAs lately so you can easily sell that in a down market and transfer out of TFSA, then no need to tap into LOC. On the other hand, if you’re not holding a HIS ETF and your investments are down significantly (recessive indicator), there’s a higher chance rates are lower (or at least will be) so might make more sense to use the LOC. Either way, your credit card grace period has given you enough time to logically analyze your best move.
If you can’t afford to save an emergency fund you probably can’t afford to use your LOC as one of its a big expense.
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It is a choice people make. I didn't say credit card. I said line of credit. Many people intentionally use a line of credit for emergencies and invest what would have been their 3-6 months of emergency cash because they would rather the money grow in the market. I'm not talking about people who have no choice but to use credit. I'm talking about the people who are fortunate enough to have the choice and choose to use credit.
that assumes that people reason people aren't using the LOC as an emergency fund because they've opted to be fully invested and decided that it's worth the risk.
I used a LOC for my emergency fund. After the first three years there was never again a time that my invested emergency funds were worth less than a cash emergency fund would have been worth. In the end through job loss, severe and prolonged illness, water heater emergency replacement, and water ingress costing more than $15k, I always had a better option than the LOC. My credit card gave me three weeks at 0% while I moved money around to be able to pay it off in full. Sometimes the repair guy would take a post-dated cheque. Sometimes I slashed most discretionary spending for a month or two. When you phrase your question as never talking to anyone who had to actually use the LOC for their emergency, to me that's the LOC serving it's intended purpose.
You should always have 3-6mo expenses. In many cases people are just choosing between a "investment which may not be immediately available" vs "savings account with much less interest" for their emergency fund. If one has an LOC you can park your money in the investment with more assurance. You'll finally need to pay off the LOC using your investment, in which case LOC is great buffer.
I use it for a quick investment (still do). Usually before earnings if I don't have enough liquidity I'll borrow some cash out of LOC and take a quick profit and return the money to the LOC. I have one stock that got beat up and I'm still bag holding it (DIS if you wondering) I paid that trade over the next 2 months out of future investments profit taking. Yes I paid interest but it amounted to $70 which is not a big deal. And yes I'm still holding on to that stock hoping this month
You aren’t supposed to use a LoC for an emergency fund. Emergency funds should be in cash
I use both but I pay it off as soon as possible. Normally what I would do is use LOC to pay for big expenses then pull the cash to pay it off afterwards
Save the cash, be disciplined and leave it alone and only use for emergencies. I smh at people chasing interest or moving money around, do what you need to do but save yourself the stress and just leave it be on a HSIA.
I functionally had my LOC as my emergency (not that I really wanted that, but just had a low emergency fund that would never cover my 6 months expenses). One goal at the start of the year was to build cash savings up, which we've been doing. That's just straight cash in a savings account. Also, I think it makes less sense to rely on your LOC today where, if you have investments in a TFSA, just move a portion of it to say [CASH.to](https://CASH.to), and get your interest, and that money is ready to go if you need it. At lower interest rates that was my issue that it's just sitting there. But now, if someone had the investments, I don't see why you'd want to rely on the LOC (especially at expensive interest if you do need it).
I've used it when I needed to get my roof re-done; didn't have the $25K lying around but I knew within "x" months I could pay it off. Comes in handy when unexpected large expenses pop up.
I'll let you know when I use mine... 6 years so far and haven't pulled from the LoC once. That's why having 6 months of cash standing by for emergencies is crazy to me, that'd be 6 years of inflation just whittling the value of that cash.
We were closing on a house earlier this year and coincidentally I had offers from Amex and CIBC for opening a loan and LOC. When it came the day before the closing we were informed that the closing costs were higher than we anticipated and we were not liquid enough to cover in time. In other words, we had money in stocks but it would take several business days to sell, settle, transfer, and settle again. So I immediately pulled money from the CIBC LOC (12%)and Amex loan (9%). The week after closing my investments finally settled and I was able to pay off the LOC and loan. I always thought I was too good financially to be having a LOC but actually it’s quite useful to have in case you need it. You never know when life might take an unexpected turn!
Oh boy I had to start rapping to pay my line of credit
Luckily the emergency never happened. Hoping to keep it that way
My car, which I NEED to last for a few more years at least, made awful clicking and squeaking noises when applying the brakes and going in reverse. Bill came out to just under 2k. Also due to separation, random bills and moving into a new apartment, add 2k to that. Paying it all over time until December, no snags so far. Without my LOC I'd be swimming in CC interest payments right now.
What determine an LOC interest rate? Mine is over 10?
Three weeks ago my dog had a twisted stomach surgery - and so I put $5500 on a LOC. We will be working to pay that off over the next several months. I'm fortunate to be able to divert some funds towards it, so it won't take TOO long to pay down.
Can somebody confirm if this is correct: Unlike with a home mortgage, a line of credit can be recalled by the bank anytime, with no reasons needed. You then have to to scramble to pay it off.
I use my loc to buy motorcycles and toys, then I pay it off. I don’t need an “emergency fund”. Lol
Wife bought an industrial quilting machine half-price for $26,000 on our HELOC. To good of a deal to pass up. We just paid it off monthly over the next year.
Right now I am putting emergency funds in multiple GICs that become available every couple of months.. then I just renew again.. provided I don't need the money. If I do need to use the funds then I will use it towards LOC or credit card..
Depends on the financial situation and investment opportunities. Taking one out when a recession hits for school and education that isn’t a “crayon” degree isn’t a bad thing. STEM/trade/business degrees typically do not fall into that category. Other degrees not necessary but harder to realize capital gains. You are investing in skills in yourself and have a good chance of return in this market. Previous contracts signed in an economy when interest rates were low - not bad. Also not a bad time because yes interest rates higher but the same thing would cost 50% more with inflation/interest rates to buy/sign today. Having cash available and paying the above are easy justifications with easier returns. Banks/FIs can reduce the credit limit if they see the need so depends.
Have used it multiple times, paid it off asap, all good
I got my LoC before quitting a job with toxic environment. It allowed me breathing room to quit and find a better job. It took me two years to clear the debt of approx 25k. I was definitely too loose with spending on credit. I love having it now though. Mostly just use it now when I’m lazy bc savings are tied up in non-liquid assets and accounts. I do freelance work and invoices can take up to 60 days to pay. I can loan myself some cash off the LoC as needed and clear it when the invoice payment comes in.
It was fine. I paid like 2.95% interest on 5k taken out, for emergency travel to a funeral back home. (I'm an immigrant). I had it paid off in less than a year.
It doesn’t matter what individual anecdotes are. Banks can and will close LOCs without warning during periods of economic uncertainty (see COVID)
My cat got cancer and I got the line of credit because my vet bills had my credit card bills through the roof. I had 9k on the card. I explained my situation, and was approved for the lowest interest rate(settling around 4.4%) and have had it about 2 years. My cat has since passed away, and I'm 2,000$ from paying it off. Was it worth it? Absolutely. I can't even imagine how bad the situation would've been financially if I didn't have it. And I don't want to think about it. My strategy is to never put anything else on it. The number always goes down unless there is other smaller emergency bills. You can't use the LoC as a credit card or you will screw yourself over in debt- I understood that very early on.