Line of credit instead of emergency fund?

**khaski** · 03-22-2011, 02:24 PM

An incredibly ridiculous idea, to me. Rather have cash in the bank earning interest (these days- HA! what a joke, but rates will eventually rise again). Circumstances change- if you have no savings to speak of, and your income delines for one reason or another, you're in less of a position to save, and less of a position to pay back a LOC. NO NO NO.

**Telephus44** · 03-22-2011, 02:57 PM

I wouldn't necessarily want a LOC, but I would have no problem keeping a credit card available for that reason. I think it depends on what you use your emergency fund for. Is it because your budget can't deal with a $400 car repair or because you need 12 months of living expenses in the bank to be able to sleep at night, or some point in between.

**scottp999** · 03-22-2011, 03:57 PM

I had a line of credit in the past as a potential source of emergency money. Once I got my emergency fund built up, I wrote them a letter to close the account.

What seemed normal 5 years ago in the personal finance arena has changed. I definitely would not have another lien holder on my house right now, but I understand people will use lines of credit (cards, HELOCs) if they have no other option.

Keep in mind, if you have a first mortgage and you want to refi quick to take advantage of a good rate, having that second lien open can get you in a jam, because you may need to show that lien satisfied to qualify for the refi even if there is a 0 balance on the line of credit account. Also, like Greebo mentioned, HELOC line companies are constantly looking at your credit to see if you have changed as a risk, and they can reduce or remove your line of credit on a moments notice.

**khaski** · 03-25-2011, 03:05 PM

Originally Posted by scottp999

What seemed normal 5 years ago in the personal finance arena has changed. I definitely would not have another lien holder on my house right now, but I understand people will use lines of credit (cards, HELOCs) if they have no other option.

Well said, things are different now- and the point of an EF is to NOT have to use lines of credit of any kind for emergencies. I tend to think those who do not feel squeemish at the thought of using them have not taken away much the past few years, watching our economy take a nose dive and people losing their homes left and right.

**ShadowMom** · 03-25-2011, 03:15 PM

We have a line of credit, but really didn't feel we had much choice. We had several emergencies come up this month (all involving vehicles) and not enough money in our savings. It is an unsecured LOC so their are no liens on anything, I'm hoping it is a one-time thing of having to use it.