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Finance

Slides 6 through 10

slide demonstration

About Interest
Discretionary Income
Summarize Facts
Becoming a Bank
What Learned
first slides
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slide6: understanding interest

But Wait One Minute!

You may be thinking that we basically traded $10,000 from one debt account to another — so where is the benefit?

You need to understand two things:

First: Compound vs. Simple Interest

Your fixed home improvement loan is based on compound interest, which means interest is compounded daily based on a mathematical formula used to calculate the amortization schedule.

The amortization schedule is used by lenders to calculate how much your monthly payment will need to be in order to reduce the loan to zero after a period of months.

The amortized monthly payment includes a portion for the interest and another portion to reduce the loan balance.

Home Equity Line of Credit Accounts Use Simple Interest.

This is where interest is charged on the average daily balance. Every time payments are made into the account, it forces the balance to be adjusted down - thus charging less interest.

Since your income goes into the account, the average daily balance remains low. You will pay lower interest charges over time than if you were to pay using a straight amortization loan (with interest rates being equal).

Also note that your income deposit becomes your BLOC monthly payment. So you will never make a payment to your BLOC.

Second: Reducing the Equity Line Balance FAST

Your discretionary income (income that is in excess of monthly living expenses) will be used to pay down your equity line balance.

By using your BLOC as your money account, the excess income that you budget through spending will automatically decease your BLOC balance.

Budgeting your discretionary income by $1,000 each month will payoff your home improvement within one year.

Example: Your BLOC account would look like this:

BLOC Account Starting Credit Line Balance: $60,000
Month	BLOC Activity		Advances from BLOC	Payments to BLOC	Balance Owned
Sep Beginning Balance					$11,500
Sep	Total Activity		$4000	$5000	$10,500
Oct	Total Activity		$4000	$5000	$9,500
Nov	Total Activity		$4000	$5000	$8,500
Dec	Total Activity		$4000	$5000	$7,500
Jan	Total Activity		$4000	$5000	$6,500
Feb	Total Activity		$4000	$5000	$5,500
Mar	Total Activity		$4000	$5000	$4,500
Apr	Total Activity		$4000	$5000	$3,500
May	Total Activity		$4000	$5000	$2,500
Jun	Total Activity		$4000	$5000	$1,500
Jul Beginning Balance					$1500
Jul	BLOC	Living Expenses	$4000		$5,500
Jul	Pay	Paycheck		$5000	$500

Total Activity			$44,000	$55,000	$500

Next Topic: About Discretionary Income

slide7: about discretionary income

Discretionary Income vs. Emergency Funds

You May be Thinking -

What's the difference between paying down the BLOC with your discretionary income or just sending in additional amounts to pay down the home improvement loan or any other debt?

Let's explain it this way

Do you set aside extra funds for emergency or other family needs?

Many families will maintain some money in their savings account for emergency or other event (i.e., vacation expense). The money sits in their checking or money market account earning little or no interest.

Some families may use some of that money to pay down a debt, but not all of it. They want to leave a fixed amount in the account for an emergency or other need.

With the BLOC, Your Equity Line is Your Emergency Fund

In other words, by using all of your excess income to reduce the BLOC balance, your money is working constantly to pay down your BLOC balance to reduce interest charges.

You don't need to set aside emergency funds with the BLOC — your entire credit line is your emergency slush fund (i.e., your bank).

So all your money is working for you. And whenever you need extra cash, you simply advance yourself money using your BLOC.

So What Is The Difference

The difference from using your BLOC versus prepaying a loan - in this example - is that the BLOC is working every minute of every day.

Every dollar of your excess funds are in the BLOC account reducing the average daily balance, thus lowering your cost of borrowing.

No need to send in prepayments. The BLOC will work faster in reducing your debt balance.

Next Topic: Use As Money Account

slide8: use as a money account

Let's Summarize These Facts

First, you must have discretionary income for the BLOC program to work

If you are living from check-to-check, you will not benefit from this program. It is your excess monthly income that allows your BLOC to function like a bank.

Note: you can build discretionary income by using your BLOC to consolidate credit card and other related debts: this topic will be discussed later.

About Emergency Savings

Do You Set Aside Extra Funds for Emergency or Other Family Needs?

Never let your income sit idle in your checking or money market accounts.

all income and savings should be deposited into the BLOC account;
all living expenses (including your mortgage payment) should be paid from the BLOC account.

Any excess income will be automatically applied to the BLOC balance, thus working instantly to reduce any related debt costs.

With the BLOC, Your Equity Line is Your Emergency Fund

The more discretionary income that you generate (by budgeting and savings), the faster the payoff. We have suggestions on building more discretionary income in another section.

You need to budget your spending to maximize benefits. Having an equity line can be tempting for purchases that are not needed, which can defeat the BLOC program. Budgeting helps you to say NO to unnecessary costs.

How to Use Your BLOC

Use Your BLOC to Fund Home Improvement

pay the contractor
pay for supplies
pay for home decor
pay for any related home improvement expense
use the money as needed
use credit cards to manage expenses
note: we will discuss this process in more detail

Use Your BLOC to Payoff Your Debts

all credit card debt
all auto loan debt
all existing home equity loan debt
all personal loan debt
note: after you pay off existing debt, you need to have a remaining credit line of $20,000 or more for the BLOC program to work. Make sure you open a sufficient line of credit that pays off your debts and leaves open a $20,000 credit line balance for the BLOC use: calculate how much your line should be based on your LTV position

Note: The money used to pay the monthly debt payments will now be added as discretionary income for the BLOC program.

Do Not Payoff

mortgage loan debt:
we have a slide presentation how you can use your BLOC to payoff mortgage debt

we will demonstrate this later

student loan debt:
if you have federal student loan debt that has not been previously consolidated, you should consider consolidating that debt under the federal student loan program. It offers attractive consolidation features.

Next Topic: Becoming a Bank

slide9: becoming a bank

Let's Demonstrate How You Can Become a Bank

Say your child just graduated from college and landed a great job. H/she wants to finance a car purchase for $15,000; but it will require you to co-sign for the note. The loan terms are as follows:

Loan Amount: $15,000
Bank Rate: 7.45%
Repayment Term: 48 months
Monthly Payment: $362.33

You have two options:

1: Co-Sign for the Note:

You can co-sign for the auto loan and let your child make the monthly payments as scheduled. The bank will earn all of the interest paid on the loan.

If your child misses a payment or two, your credit record will reflect that (since you are the co-borrower).

If your child fails to make scheduled payments, the bank will require you to make the payments.

2: You can use your BLOC to Finance the Auto:

You can use your BLOC to finance the auto. Your child will be responsible to you for the monthly payments. All of the interest on the loan will be coming to you.

In the event your child misses a payment or two, your credit record is protected since your income deposits are constantly paying your BLOC account.

If your child fails on the loan, you are in a better position since you will be paying your BLOC instead of the bank.

BLOC Account Starting Credit Line Balance: $60,000
Month	BLOC Activity		Advances from BLOC	Payments to BLOC	Balance Owned
Aug Beginning Balance				$500
Aug	BLOC	Advance on Auto	$15,000		$15,500
Aug	BLOC	Living Expenses	$4,000		$19,500
Aug	Pay	Paycheck		$5000	$14,500
Aug	Pay	Auto Payment		$362	$14,138
Total Month Activity			$19,000	$5,362	$14,138
Sep	Total Activity		$4000	$5362	$12,776
Oct	Total Activity		$4000	$5362	$11,414
Nov	Total Activity		$4000	$5362	$10,052
Dec	Total Activity		$4000	$5362	$8,690
Jan	Total Activity		$4000	$5362	$7,328
Feb	Total Activity		$4000	$5362	$5,966
Mar	Total Activity		$4000	$5362	$4,604
Apr	Total Activity		$4000	$5362	$3,242
May	Total Activity		$4000	$5362	$1,880
Jun	Total Activity		$4000	$5362	$518
Jul Beginning Balance					$518
Jul	BLOC	Living Expenses	$4000		$4,518
Jul	Pay	Paycheck		$5362	$(844)
Total Year Activity			$63,000	$64,344	$(844)

Next Topic: What Has Been Learned

slide10: what has been learned

What We Have Learned

You can use your BLOC to finance any need. As demonstrated in the previous illustration, you paid off the car within 1 year. All further payments from your child is now excess income. You will be earning the interest instead of the bank.

Of course, this is a simple illustration. Factors may lesson the amount of discretionary income you may have from month-to-month.

What has Been Demonstrated is the Power of the BLOC Program

You could use the BLOC to finance home improvement, put a down payment on car, pay for college, start a family business, and finance other family needs.

Where to Next

Next Step:
view the options on how best to pay for home improvement:

go to funding options

Following Step:
use this 10-step success plan for implementing and managng your BLOC:

view 10-step success plan

Last Step:
see how the BLOC can be used to payoff your mortgage:

view mortgage payoff plan

Important Note:
Never Let Your BLOC Move Into Negative Territory

Your BLOC should not drop below a zero balance. This is money that you are giving away to the banks.

You should use your BLOC to payoff your mortgage whenever your BLOC balance reaches zero.