What is an equity line of credit?

A home equity line of credit (or HELOC) is an instrument offered by the bank that will allow you to withdraw funds at any time and for any purpose. Each withdrawal increases the amount owed to the bank. You can make payments to the bank at any time, which will reduce the balance.

Think of it like a great credit card! With a credit card, you can make direct purchases with a merchant, such as Walmart. With a credit card, you can also get “cash advances.” But these cash advances generally have high fees and a higher interest rate.

A HELOC is a great credit card that only allows cash advances … BUT … WITHOUT THE FEES OR HIGH INTEREST RATES!

Credit cards are based on your overall credit profile, while HELOCs are guaranteed by your home equity. That is why they are very easy to get.

Our bills, expenses and income …

Monthly income = $ 6000

• $ 10,000 car loan ($ 350 monthly)
• Student Loan $ 3,000 ($ 90 per month)
• Credit cards $ 7,500 ($ 250 monthly)
• Medical $ 18,000 ($ 400 monthly)
• Home mortgage $ 115,000 ($ 2,000 per month)
• Other expenses ($ 1,000 per month)

So based on our budget, our estimated cash flow was
$ 2,000

Step 1: Get a HELOC from the bank

The first thing we did was go to the bank and get a HELOC with a limit of $ 50,000.

Although the limit was $ 50,000, the balance owed at that time is $ 0. Remember, it is like a credit card. So you don’t owe anything until you actually use it.

Step 2: Withdraw and pay off the debt

Then we withdraw about $ 20,500 and pay for our car, student loans, and credit cards.

At this point, we owe $ 20,500 on the HELOC … BUT our cash flow has increased from $ 2,000 to $ 2,700. This is because we no longer have to pay the car note, student loan, or credit card bills.

Step 3: Pay the HELOC

To pay the HELOC, we simply use the HELOC as our new checking account.

Let me repeat … we stopped using our regular checking account and just started using the HELOC as our new checking account.

How did we do this? When we were paid, we immediately took 100% of our paycheck and deposited it against the HELOC. This reduced the balance by $ 6000.

To pay all of our bills and living expenses, we simply withdraw the HELOC amount and pay it. This amounted to approximately $ 3,400.

This means that the HELOC was reduced by $ 2,600 each month.

At this rate, the HELOC paid off in 8 months (20,500 divided by $ 2,600)

Step 4: repeat

We repeat the process for the Medical Bill and the Mortgage. For the mortgage, we withdraw $ 20,000 at a time.

All debts, including our Mortgage, were paid off in 4 years!

Doing it the traditional way would have taken us 20 years.

Summary …

In short, your home is your greatest asset. As long as you live in the house, the equity is “dormant.” It does not benefit you.

Yes, it looks and feels good knowing that your home is worth more than it owes. But why not use it to your advantage!