Borrowing money at low rates when emergencies arise

Posted By on September 9, 2015

I’m a Dave Ramsey advocate for borrowforlessthan2percentthe most part and prefer not to borrow
money for anything other than a home. Unfortunately that’s challenging for most people as well as yours truly a few items in the past.

Brenda and I borrowed when starting and expanding our small business, for the occasional new car (a foolish luxury) and even at times when we could have paid cash things … but the incentive rates made it difficult to justify withdrawing invested money for a large purchase.

We’re facing a similar decision this year in dealing with a income shortfall due to Brenda’s recent injury, high deductible medical plans ($12,000 out of pocket) and short term disability compensation (this year only 60% of her base pay – hm, when did that change???).  This uncalculated loss of income and the extra expenses make paying our fixed expenses tough. It is probably my mistake in running our budget so tight as not to have enough extra emergency funds available … outside of tax favored savings, but I’m starting to conclude that borrowing short term may make more fiscal sense in the long term (although it still bothers me). 

chaseinkcardSo here’s the plan … I’m pulling out an old Chase INK business credit card that is currently not being used and am using the balance transfer option. I picked Chase due to the 15 month 0% interest offer with only a 2% transaction fee (less than most). This means that the annual percentage rate on borrowed funds is actually less than 2% (although beware of the terms if you should miss a payment, use the card for something else, etc). Frankly borrowing unsecured at less than 2%/year is hard to beat, particularly if I were to calculated the tax consequences of adding additional business income or the loss of investment earning that I would normal dip into to be used instead of borrowing.

So perhaps there are times when borrowing for the short term is a financially wise thing to do? It is times like these that I see the value in borrowing from a cash accumulating whole life insurance policy rather than choosing only term insurance.

Comments

  • Jamie Reid

    We actually built our vacation home using a couple credit card loans. The bank was unwilling to give us a construction loan so between what we had saved and using 2 different credit cards we paid for materials and subs borrowing in this way. It actually helped in the long run and forced us to pinch pennies and complete the construction in steps which was the way we wanted to do it anyway. We now own everything outright in only a few years rather than taking out a traditional construction loan and mortgage. I’m thankful we didn’t get the construction loan.

    • Well done. That takes a lot of discipline but if responsible with finances makes perfect sense. I’d rather be “borrowing” for that purpose 🙂 but the positive is having good enough credit in order to even be able to get an under 2%/year loan.

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