Your home equity line of credit is not an ATM

Last August, I wrote about the “Speed Equity System,” a dumb idea centered around using a home equity line of credit as if it were a bank account. The basic idea is to deposit all your income into your HELOC, preventing as much interest from accumulating as possible. If you do, you can pay off a HELOC faster.

Yes, it works, but I didn’t think much of the system in August, and the rash of HELOC freezes that started in April makes it clear why. The bank giveth credit, and the bank can taketh credit away. Which is just what Citibank did.

Some of the 50+ people who commented on my post on Citibank’s unilateral credit freezes seem to have learned the hard way that a line of credit is not an ATM. Even though a bank gives you a line of credit, the bank can probably take that line of credit away again under the terms of your contract.

The Speed Equity System seems like a great idea, but relying on a HELOC or a credit card for emergency expenses is a bad idea, in the first place. Relying on a HELOC for everyday expenses is a recipe for disaster.

(photo: Wikimedia Commons)