Draw the Chunk the Day You Send It: What Three Idle Days Cost on a $10,000 Draw

A line of credit charges interest on your balance each day. It's the same average daily balance idea that runs through all of Dynamic Banking, which means the day you draw matters.

Suppose you pull a $10,000 chunk at 6.25%. Interest on that amount runs about $1.71 a day, which is $10,000 times 0.0625 divided by 365. If you move the $10,000 into checking on Monday and your payment to the target debt doesn't post until Thursday, you've paid for three days of borrowing with nothing to show for it. That's about $5.14. It's small, and it gets repeated every time you chunk.

The bigger issue is that the debt you're paying hasn't been reduced yet. For those three days, the other loan is still charging interest on the full balance. So you pay for the draw and you also give up the interest you'd have saved. At 4% on a $10,000 piece of a mortgage, that lost saving is about $1.10 a day. Together that's roughly $2.81 a day for money that isn't working.

How do you tighten it? Look at how the lender posts payments. Some let you send a payment to the other loan directly from the line of credit in one step, so draw and payment land the same day. Others require a transfer to checking first and then a separate payment, which adds a day or two. Ask your lender how long a draw takes to arrive and how long an outgoing payment takes to post. The four ways to move money off a HELOC compares the options by speed.

Pay attention to the posting date, too, not just the date you hit send. A payment sent on Friday evening may not post until Monday. For a mortgage, check whether the servicer applies a chunk to principal immediately or holds it until the next due date. If it holds, the chunk sits unused, so you'd want to ask first. The prepayment penalty post covers another thing to confirm.

With one chunk a month and a three-day gap each time, that's roughly $100 a year at these rates. That isn't a reason to skip chunking. It's a reason to fix the timing, since it costs nothing to fix.

Next time you draw a chunk, record the date it left the line of credit and the date it posted to the other loan. If the gap is more than a day, ask your lender for a faster route.