A viewer left me a long comment on a Dynamic Banking video. He asked why anyone would pay credit cards and utilities from a line of credit at 6.25% when a checking account with automatic bill pay costs 0%. My reply is in a video on why not just use a checking account. The viewer's setup is fine, and nothing's wrong with it. It just doesn't make your cash flow work as hard.
Take a $5,000 paycheck that lands in checking on the first of the month, with a credit card bill due on the 10th. For 10 days, that money sits. Checking accounts pay somewhere between 0% and 1%, and most pay close to nothing. At the high end, $5,000 for 10 days earns about $1.37. If the same $5,000 sits in a line of credit that has a balance, it offsets 6.25% interest for those 10 days, which is about $8.56. Neither number is large. The point is that the checking account has no way to cut your interest bill.
The bigger gain comes when you have other debt. Say you have $5,000 of room in your line of credit at the start of the month. Put a $5,000 chunk on a card charging 22%. You've swapped 22% interest for 6.25% on that amount, so you save about 16 points right away. Then your paycheck lands and goes straight into the line of credit, which returns the balance to zero. For the rest of the month you pay bills from it, and the balance climbs slowly. On average you owe less than you would have, so you pay less interest.
That works less well on a 4% mortgage, because you'd trade 4% for 6.25% on the chunk. It only makes sense if the paycheck coming back in is part of the plan. In a real month the savings are small, maybe $20, $30, or $40. But you can add that to the next month's savings, and it snowballs. It also doesn't change how you live.
And if you have no debt to offset, the same move can grow wealth. Take the $5,000 from the line of credit and use it to pay premiums for paid-up additions in a cash value policy. When the paycheck arrives, you pay off the line of credit. The policy keeps growing, with a projected 4% to 6% depending on the contract and the dividends or index credits, and none of that is guaranteed. You only pay interest on the line of credit while you owe on it.
Paying bills from the line of credit doesn't mean doing it by hand. I set up automatic bill pay from mine. A line of credit rate can rise, and this plan fails if spending creeps up and the balance never comes down. A line of credit works only when your monthly cash flow is positive.
Run your own version with last month's numbers: your paycheck date, your biggest bill date, and your line of credit rate.