A viewer asked me: is there an optimum chunk amount, or is the bigger the better? A chunk is the lump sum you draw from your line of credit to pay down another debt. The short answer is that it depends on what you're paying down and what your line of credit costs.

Start by comparing the two interest rates. Say you have a credit card at 18% and a line of credit at 6.25%. A big chunk is the right move. Every dollar you move off the card saves 18% and costs you 6.25%, and your paycheck running through the line of credit pushes that cost lower. I'd actually take most of the line of credit and knock the card out in the first month. The first chunk math shows a worked example.

Now flip it. Say you're paying down a 4% mortgage with a line of credit at 7%. You're moving cheap debt onto expensive debt, so the line of credit balance needs to stay as close to zero as you can keep it. That calls for smaller chunks, because a small chunk keeps your average daily balance low and cuts the interest you pay on the line of credit. You may even save more by not chunking that debt at all. The larger chunk could still win on a long, high-balance mortgage with 30 years left, even at a higher line rate, so don't guess. I run the numbers by brute force. I haven't found a calculator that handles it well.

So the decision comes down to the spread. When the debt's rate is much higher than the line of credit's, go big. When the rates are close, or the line of credit costs more, go small and keep the line of credit balance low. The post on when the next chunk is due covers how to time smaller ones.

The second question is how much of the line of credit to use. I treat the line of credit as part of my emergency fund. I keep a small amount of cash on hand, a thousand or two, because an emergency like a power outage can happen when the bank isn't reachable. I keep a few thousand dollars in checking or savings for the next level of need. The rest of my emergency cushion is the unused space on my line of credit, and I don't take chunks that use all of it. A bank can also cut a line of credit, so unused room isn't guaranteed. Never maxing the line of credit is the rule that protects you.

This came up on a live stream, and I covered it in a video on whether paying bigger chunks is better in Dynamic Banking.

Before your next chunk, write down two numbers side by side: the rate on the debt and the rate on the line of credit. If the first isn't clearly higher, shrink the chunk.