What would you say if someone told you that you could pay-off your consumer debt in 3 years and your mortgage in 10 years and you wouldn't have to make any financial sacrifices to make it happen?
Sounds too good to be true, but is it? The answer will likely surprise you, but just because it might work, doesn't mean that it's the best option for you.
For starters, it may require that you open a second mortgage on your home or for our example below, secure a bank line of credit (BLOC). You then take the borrowed money and apply it against your debt, which reduces the principle, and thus the amount of interest you will pay.
Your next step is to deposit your earnings into your BLOC account, which reduces the amount you owe against your bank line of credit. You then withdraw money from the BLOC account for your month expenses, which is essentially re+borrowing the amount you paid down.
When the next month comes, the balance remaining in your BLOCK account is used to pay your mortgage payment, and anything above and beyond your normal payment is used to pay down the principle. This cycle of cash-flow reduces the amount of time it take to repay your debt.
The process repeats itself until your debt is eliminated. Essentially, it is a revolving line of credit used to carve small percentages off the amount of debt interest you are paying. Here is a simplified version of the process:
- Open a BLOC (bank line of credit)
- Borrow against your BLOCK to pay your debt
- Deposit your earnings into the BLOCK
- Pay your bills out of the BLOCK
- Remaining funds go toward debt and principle
The key to making your cash-flow work to pay-off your debt is to first create margin and then make your financial goals your number one priority. Of course, you don't need a revolving line of credit with the BLOCK to reduce the amount of interest you pay each month. You can pay extra or send in payments every two weeks.
The difference is in how the interest on your BLOCK is calculated as compared to your mortgage interest or other secured loans. Perhaps, how quickly you can repay your mortgage or how much you can save depends on how much extra cash-flow you can divert toward your debt each month.
If you already have a huge cash-flow surplus each month, then you can easily do it. If you are already struggling with debt or cash-flow, then you first need to review the cash-flow framework.
A BLOCK might be beneficial for some, but you need to run the numbers based on your situation and cash-flow budget. The BLOCK process is not a magic pill to fix your lifestyle or a magic bullet to create infinite cash-flow. However, it is a system that can help you pay off your debt more quickly so that you can leverage your savings and covest into cash-flow producing assets.