Today, more than ever, people are tempted to use their Personal Line of Credit (PLOC) for a major purchase. Bad idea! Your PLOC is your security blanket. Don’t misuse it!
A PLOC is:
- callable at the bank’s whim
- variable at Prime plus something. The bank can change that something whenever it wants
- variable based on Prime that the Government sets
- the real never – never plan: see the chart below
- often secured by your house, limiting your borrowing ability
- your access to emergency funds
- your Financial Flexibility
“Interest Only” options means you are never paying down the borrowed amount against your depreciating asset! What if you had to sell quickly? Where would the shortfall come from?
Minimum payments aren’t contributing to your outstanding balance significantly. So, even with a lower rate, you are paying more interest dollars over time. And it’s really about dollars not rate!
The Bank will set you up once with a PLOC and count on you using it. They have no administrative costs. They likely even charged you to set it up! And they are counting on you keeping it full. Minimum payments ensure they are making maximum profit.
Maintain your financial flexibility! Keep you PLOC for family emergencies or quick access to money.