Question number 10 in the series of the Money Merge Account Top Twenty Questions comes up from folks who already have a line of credit of some type and they are interested in using that in conjunction with the Money Merge Account system.  Remember, a line of credit is not necessary, and, it will work very nicely.

Question number 10 is:

Do I pay interest on the line of credit? 

Please recall that the Money Merge Account system will work equally well using either a line of credit (personal, business, home equity), or, for folks who do not have a line of credit of some kind, they simply use their checking account, savings account, and a credit card. The system works equally well in either mode.

For those that use a line of credit, nothing about the line of credit changes when using it with the Money Merge Account system. The only thing that does probably change is the amount of interest that would be paid. You will pay less interest using the system.

So, the answer is...yes, if you borrow money through a line of credit, there will be some interest charge to do so, and generally, lines of credit calculate interest based upon the average daily balance that is withdrawn. Now, what does that mean? Let's look at an example...

For ease of math, and let's keep it simple for my sake. Let's say that you borrow $10,000 from a line of credit and the annual interest rate is 12%. That calculates to 1% per month of interest. Since the interest is calculated on the average daily balance, you would only be charged the entire 1% if you withdraw the full $10,000 for an entire month. If you pay it back sooner, you get charged only for the days that you use the money withdrawn. The monthly interest charged for one month in this example would be $100, if I pay nothing back during the month.

Since the system flows all cash flows through the line of credit, the balance in the line of credit will be going down each month, so my actual interest charge will be less than the full monthly amount each month. Now, let's see if it is mathematically worth it to do this transaction.  Surely it would not be prudent to borrow at 12% to pay debt at 6%. 

If I have a $200,000 mortgage with a fixed interest of 6% and I transfer the $10,000 from my line of credit to my mortgage, payable to principal only, that will save me approximately $46,000 in interest on my mortgage and will save years off of how long I must pay on the mortgage. If my income is $5000 per month, and my expenses are $4000 per month, the balance in my line of credit will be back to zero in 10 months. I will pay something less than $1000 in short-term interest on my line of credit to save $46,000 in long-term interest on my mortgage. As a long time investor and a fairly savvy financial guy, I will make that choice every day of the week...wouldn't you?

Most folks that look at the Money Merge Account system get excited about what it will do for them, and some don't.  There is no way to make that determination without doing an analysis using your specific financial information. 

It would be my pleasure to do a complimentary analysis for you so you can find out if it will work for you.  Please click here to let me know.