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Line of Credit - How it Works

We have compiled this information sheet to summarise on the main points to pay your loans off as quickly as possible – without making extra payments.  

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The amount by which your loan can be reduced using your Line of Credit will depend on three things:

  1. The size of your debt, which will dictate the amount of interest you will be charged each month;
  2. The size of your income; and
  3. Your personal expenses and how often you withdraw them.


The key to saving money is that interest is calculated on the Daily Balance – so you want to aim at having as much money as you can sitting in your Line of Credit for as long as you can – thereby reducing the amount of interest you have to pay.  All your income should be automatically directed into this account.  Your Line of Credit facility has been set up with a limit where you can redraw your ‘surplus’ funds on at any time. 

Another key principle in maximising your effectiveness in reducing your loan is to ‘Live on a Credit Card’  

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Some people still believe that the introduction of Credit Cards was the worst thing that ever happened in the western industrialised world.    Not any more!

  1. Choose a credit card that has a 55 day interest free period;
  2. Use your credit card when purchasing groceries as well as  paying your phone bill. Just about any purchase can be made on credit card; and
  3. Make sure you clear the credit card prior to incurring any interest charges.

When you first receive your Credit Card account you will be advised of a ‘due date’.  Usually you will have three weeks to pay the account prior to accruing interest.   Simply write a cheque on your Line of Credit facility to pay for your Credit Card, making sure that it reaches the required bank prior to the ‘due date’.

Your cash requirements for day to day living expenses (i.e. coffee, parking, kids’ pocket money) are the only variables in this process.  As you become more accustomed to using your Credit Card you will quickly come to realise that you don’t need very much cash to live.  Keep in mind that BAD tax is applicable to your Line of Credit facility so don’t become reliant on the automatic teller machine every other day for your cash requirements. If you budget for you cash requirements you are much better off to advise your paymaster to separate say $200.00 per month into a convenient savings account that you can access ONCE a month. A little bit of planning in this area and you will again maximise your available funds and minimise any bank fees.

We believe that if you structure your loan facility this way it offers you the best finance package available today leaving you with the flexibility to reduce your loans according to the lifestyle you enjoy.  Your lifestyle will be the determining factor in how quickly your loan reduces.

 

For further information or a consultation please do not hesitate to Contact FAAR

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