Introduction
After getting hit with so many NSF fees this year, a reader suggested I sign up for a line of credit at my CU to help mitigate some of the fees. And that’s what I did.
Signing up
It varies with every bank, but my CU allowed me to open a new account once I had logged into my account. It took probably less than a minute to apply for it. The bank has all of your info already. The biggest question mark was how much credit I wanted. I chose $10,000 since I figure that’s how much my CU would give me without giving me a hard time. Plus, most of my NSF’s have been <$10K. I usually know when the big payments are due. My CU did HP my credit for the application. Naturally, I didn’t get an immediate approval.
Approval
After a few days, I got an email saying I was approved for a $10K LoC with a 10% APR. That wasn’t the lowest rate nor was it the highest rate. I didn’t care since I can usually get my balance into positive territory after a few days.
How it works
A month after I was approved, sure enough, I had forgotten about an autopay and BAM! Instead of getting hit with an NSF by the cc and my bank this time around, the $3,000 payment swept from my LoC and paid the cc. My checking account was something like a negative $1500 and my LOC balance was $1500. I then immediately went to deposit some checks and on the next business day, when the checks usually clear my checking account, it automatically paid off the LOC, and I now had a positive balance again in my checking account.
Fees
There usually isn’t any fees when you ‘sweep’ money from the LoC. Usually you get hit with the interest on the money you’ve borrowed. I was looking to see how much I would be charged for that 1 day of $1500 that I borrowed, but I was never hit with any fees. I’m not sure if it’s because I paid it off within a day or what, but I’m not complaining.
Conclusion
If you’ve been getting with NSF fees of late, even if you’ve promised yourself you’ll be more organized, it doesn’t hurt to open up a LOC at your bank so you don’t get slapped with $50+ in combined NSF fees.
Good idea – thanks
Have this with Cap1 360 (formerly ING Direct). It’s saved my bacon more than once and a big reason I still hang onto this account. Wish more big banks offered it.
Is there any downside to a LOC besides the HP? I was thinking of getting one and just leaving it as a bolster of my emergency funds. Is there any inactivity fee, annual charges, etc? Will it remain in perpetuity or is there a time restraint?
Yeah, doesn’t seem to be any ongoing fees or inactivity fees (at least with the CU’s I have it with so far.) I think it’s a good umbrella to have just in case. Only downside is the HP, which is fine, and should last in perpetuity. Should check with your local CU first though in case YMMV.