Author Topic: Springy Debt question  (Read 2068 times)

fb132

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Springy Debt question
« on: July 12, 2015, 04:10:45 PM »
So I have a savings rate of around 50% in most months...which is on average 800-900$ depending on how much I make. I had about 2K$ sitting in my account and after reading MMM's take on EF, I decided it's time I apply his method. I also use YNAB and the buffer method (spending last month's income for this month's expenses) which also helps out incase I get hit with an unexpected expense.

Since the stock market has been down as of late, it was a perfect time for me to use my 2K$ and invest it. Now, the only money I have in my account is last month's income to pay for this month's expenses and next month's income...that's it.

My question is (because I want to make sure I understand the rules of this), if I get hit with an unexpected expense, is this a good order for me to use in order to clear an emergency situation, meaning, my first line of defense against an unexpected situation would be:

1)Credit card (Interest free for 20-25 days)
2)Pay it off with this month's leftover money and next month since I already have the money for next month, therefore I can budget in advance.
3)If the amount is still bigger than whatever I have in my account, I use the line of credit (interest rate of 6,64%) and gradually pay that off
4)If the amount owed takes me more than 6 months to pay it off, this is where I withdraw my money from my investments that are in my TFSA (Tax Free Savings Account, in Canada, we don't get penalized from withdrawing, however we have to wait the next calendar year to reinvest the amount withdrawn)

FYI, I don't have an HELOC, I only a regular line of credit and 2 credit cards.

So is that a good order or did I make a mistake somewhere? Should I wait 12 months instead of 6 before withdrawing from my investments?
« Last Edit: July 12, 2015, 04:15:57 PM by fb132 »

Retire-Canada

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Re: Springy Debt question
« Reply #1 on: July 13, 2015, 07:14:31 AM »
I'd wait longer before I removed $$ from my TFSA.

I'd also talk to your bank about a lower interest rate for the LOC. I just complained about mine and they dropped it by 1%. Rates for banks are low so there is no need for them to charge you so much.

Otherwise that looks reasonable.

fb132

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Re: Springy Debt question
« Reply #2 on: July 13, 2015, 08:20:47 AM »
I'd wait longer before I removed $$ from my TFSA.

I'd also talk to your bank about a lower interest rate for the LOC. I just complained about mine and they dropped it by 1%. Rates for banks are low so there is no need for them to charge you so much.

Otherwise that looks reasonable.
How long should I wait before that happens? My bank usually lowers the interest rate only if I accept to higher my limit, should I simply ask them to lower my interest rate in exchange for a bigger limit?
« Last Edit: July 13, 2015, 08:24:57 AM by fb132 »

Retire-Canada

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Re: Springy Debt question
« Reply #3 on: July 13, 2015, 09:11:01 AM »

How long should I wait before that happens? My bank usually lowers the interest rate only if I accept to higher my limit, should I simply ask them to lower my interest rate in exchange for a bigger limit?

There is no penalty for asking. I would just call them up and say you've been reviewing your financial products and you are unhappy with the interest rate on your LOC given the low prime rate. Say something positive about the bank and how you want to keep your business with them, but at that high rate you will need to shop for a new LOC at a lower rate.

I wouldn't offer to raise your LOC limit unless you want a higher limit, but if they make that a condition of dropping your rate I would accept it. You don't need to use it and if your LOC acts as your EF than having more room could be useful.

fb132

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Re: Springy Debt question
« Reply #4 on: July 13, 2015, 12:21:16 PM »
And when is the "time" where I say "ok, I must withdraw from my TFSA because this emergency will take x amount of months/years to pay off".