Personal Line of Credit vs Credit Card
My personal line of credit is all set up. I tested it by making a transfer from it in the morning and transferring the money back in the afternoon. I don't think I will owe any interest that way. It worked as advertised.
A personal line of credit and a credit card are both unsecured open-end ("revolving") credit products. In a nutshell, a personal line of credit is like a credit card without a grace period or rewards, but with better cash advance features. Lines of credit are very common for businesses whereas credit cards are more common for individuals (there are also business credit cards). Based on my own personal line of credit with Wells Fargo and my three credit cards from American Express, Chase, and FIA Card Services (Bank of America), I summarize the differences in the table below. Red indicates inferior product features.
| Personal Line of Credit | Credit Card | |
| Secured | No | No |
| Document income for application | Yes | No |
| Purchase | Yes, by check or card | Yes |
| Grace Period | No | Purchase: 20 – 56 days Cash advance: No |
| Credit Limit | Lower | Higher |
| Credit limit for cash advance | 100% | 20% |
| Cash Advance Fee | None | 3%, min. $10 |
| Rewards | No | Purchase: Yes Cash advance: No |
| Annual Fee | Waived | No |
| Interest Rate | Prime + 8.5% | Purchase: Prime + 6-10% Cash Advance: Prime + 16-22% |
The Credit Crunch Finally Hit Me
In last week's post Emergency-Proof Your Emergency Fund, I said I decided to apply for an unsecured personal line of credit from Wells Fargo, where I also have a checking account.
I submitted the application online. The questions were as expected: name, address, Social Security Number, employment information, income, size of the credit line requested, and the purpose of borrowing. They said a decision typically takes two business hours. I waited all day but I didn't hear anything. I finally called and they said my application was declined! If you can believe it, they asked me if I would like to be referred to Wells Fargo Financial, their subprime unit. Me? Subprime? No, thank you.
The underwriter said the reason for the decline was that the size of the credit line I asked for was too high for my income. Fine, tell me what you can give me. No, they just flat out declined me. It's been widely reported that credit card companies are cutting people's credit limits. They have spared me so far. Ah, the credit crunch finally hit me.
Emergency-Proof Your Emergency Fund
Everybody knows they should have an emergency fund. There are many articles and discussions about how much one should have in the emergency fund and where to keep the emergency fund in order to earn the most interest. This post is not about either of those topics. Having an emergency fund is one thing. Having access to your emergency fund when you have an emergency is quite another. When an emergency strikes, is your emergency fund able to deliver?
Money market funds and online high yield checking or savings accounts are popular choices for where people keep their emergency fund. I keep mine in a money market fund in Fidelity mySmart Cash account. My two recent episodes of emergency showed that my emergency fund was inadequately prepared for real emergencies (see previous posts BBG Communications: $27 for a 1-Minute Phone Call and Credit Card Cash Advance Saved the Day). When I needed money, I couldn't get hold of it easily. I must find a better way to emergency-proof my emergency fund. How fast can you get money from your emergency fund when you have an emergency?
ACH transfer. When you have your emergency fund in a money market fund or in an online high yield checking or savings account, you access your emergency fund primarily through ACH transfer. On average, ACH transfers take two business days. Some institutions take longer. Some like Fidelity can do it in one business day. There's usually a cutoff time for the transfer request. Request submitted after the cutoff time is processed on the next business day. If your emergency can wait two business days, you can use ACH. If you think you can deal with all your emergencies that way, you can skip the rest of this long post. What if you need money sooner than that? An emergency that can wait two business days isn't so much an emergency.
Credit Card Cash Advance Saved the Day
I took a cash advance from a credit card last week. I had never done that before. I'm very happy I was able to do it. I'm also very happy with the cost and the efficiency of how it was done, even though I borrowed at 39,608% APR.
I had been in the process of doing a mortgage refinance. At 9:30 in the morning that day, I got an e-mail from my loan advisor with my final HUD-1 closing statement. Documents signing was scheduled at 11:00. I had been waiting for this for quite a while. I had money ready in my Fidelity mySmart Cash account. Not a problem, except they required a certified check. In my previous refinances, I've always been able to submit a personal check. So I erroneously assumed that it would also be the case this time, without asking the loan advisor ahead of time. My bad. I needed about $4,000 for a certified check. I had to have it in about one hour.
I also have a checking account with Wells Fargo, although I only used it for depositing paper checks. I went into a Wells Fargo branch and asked them if they would allow me to deposit a personal check (from Fidelity mySmart Cash) and make it immediately available for the certified check. Despite my having a "top of the line" relationship checking account with Wells Fargo, they said no, which I could understand. I was basically asking them to advance money to me before they collect on the check. I called Fidelity. They said in any single day I can withdraw maximum $500 from an ATM and do a cash advance against the Visa debit card in a bank branch for up to $2,499. Theoretically I could do both and get $2,999. Because the Wells Fargo ATM charged $3 fee, withdrawing $500 plus the $3 fee would throw me over the $500 limit. I had to withdraw $480. Together with the $2,499 cash advance, I got $2,979.
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