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Adam Carroll joins us to discuss how to actually save thousands on your mortgage with home equity lines of credit.

When we interviewed Adam for our new Rich Tips series, he mentioned how he is paying off his mortgage years ahead of schedule and saving thousands of dollars in interest. We were intrigued and asked him to join us to explain his strategy in greater detail.

What Is A Home Equity Line Of Credit?

A home equity line of credit, HELOC, is “An open ended line of credit extended to a homeowner that uses the borrower’s home as collateral. Once a maximum loan balance is established, the homeowner may draw on the line of credit at his or her discretion. Interest is charged on a predetermined variable rate, which is usually based on prevailing prime rates.” Most institutions will lend up to about 90% of loan to value.

Strategy

Adam has an ingenious use for his HELOC and you can use his strategy too. The HELOC is used as a checking account. All of your income is deposited into it and all of your expenses are paid out of it.

Depositing your paycheck into the HELOC acts like a payment so you aren’t adding a monthly payment. The money left over at the end of the month gets sent to the mortgage. What this does is send a massive payment to your mortgage each month.

The trick to make this work though is that you have to make more than you spend. Let’s look at an example: You bought a home for $100,000 with a $20,000 down payment. You can immediately take out a HELOC for $10,000. You then put that toward your mortgage.

In order for this to work though, you must make more than you spend. You make $5,000, spend $4,000 and have $1,000 left. That $1,000 goes into the HELOC until it’s paid off, so for ten months. Let’s say your interest rate is 5%. So that’s $500 over 12 months, $41.33 the first month in interest but when the income goes in, you’re paying a little less each month because you’re slowly paying the loan down with that $1,000 a month.

Rather than taking ten months to pay off, it takes around 7. And because your mortgage went from $80,000 to $70,000, you will pay less interest not just over ten months but over the entire life of the loan.

What If You Don’t Own A Home?

You can still use a similar strategy if you don’t own a home. You can get a personal line of credit, PLOC. A PLOC is “A loan that you use like a credit card account that you access without using a card. Instead, you write special checks or request a transfer to your checking account by phone or online. You have a credit limit, receive a monthly bill, make at least a minimum payment, pay interest based on your outstanding balance, and possibly pay a fee each time you use the account.

PLOC are unsecured, unlike HELOCs, which are backed by a mortgage on your home. PLOCs are offered by banks and credit unions and usually require that you also have a checking account with the same institution.”

PLOCs have their drawbacks. The interest rate is higher than a HELOC and the interest is not tax deductible. But if you have high-interest debt and don’t own a home, they can be beneficial.

What Keeps Us In Debt

It’s the way we bank and borrow. Taking out a 30 year mortgage is just SOP in the United States. Amortization is the process of paying off a debt, like a mortgage over time with regular payments. An amortization schedule is a table detailing each periodic payment on an that loan.

We borrowed $80,000 to buy our home above. With a 30 year mortgage at 3.5%, you will pay $50,000 in interest when it’s all over! Your first mortgage payment will be $359,

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Andrew and Matt share their stories and the lessons they learned creating a blog that makes passive income but more importantly, they are going to spell out the exact steps they took to achieve financial independence.

They will cover:

How to Start a Blog (Step-by-Step Guide) – Everything you need to get started in under 10 minutes with $160. The act of paying someone to host a blog for you is easy.

How to Monetize your Blog – The only two ways that matter and the one you should avoid at all costs.

Your Creation Strategy – Make what people are actually looking for. Also, 80% of SEO is bullshit. I am not special, the internet is filled with people doing exactly what I do. The difference is, I’m just going to tell you for free.

A Blog’s Growth Trajectory – What you should expect in year 1, 2, 3, 4 and 5. It’s all about appropriate expectations because slow and steady wins the race. Going viral is bullshit. Winning online isn’t about being the fastest, it’s being the one left after everyone else gave up.

How You Will Fail – It’s going to happen, and it’s going to happen a lot. Learn about the “Equal-Odds Rule” and how it applies to every success you’ve ever seen. For me, my failures have been far more instructive than what I’ve actually done right.

Full Article Here

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On this episode, we talk to Adam Carroll who created the documentary about the current student loan debt crisis called Broke, Busted and Disgusted.

We get a lot of questions about student loan debt but we didn’t understand just how dire the state of things was until we spoke to Adam. It’s so much worse than you can imagine. When BB&D is released it will be a wake-up call for a lot of people.

For many people starting college, they have no idea what it means to take out massive amounts of student loans. This is especially true for first-generation college kids. Some of them are leaving school with $70, $80, $120,000 of debt.

So, why is college so expensive now? Federal funding for education has been cut. Bankruptcy laws were changed in the early 2000s to exclude student loans from being discharged in nearly all circumstances.

That was carte blanche for the lenders. There was nearly no way they would lose money and they opened their coffers accordingly. There is now $1.2 trillion in outstanding student loan debt.

What can you do to avoid the crushing debt? You don’t have to go to the most expensive college that will have you. Take some classes at a local community college. Not only are the classes cheaper but you can live at home to save on living expenses as well.

Get as many grants and scholarships as you can. Choose your major carefully. Make sure that your degree is in a field that is in demand and that your salary will be enough to live on and pay back your loans.

A college education is still a good investment for most people but we have to redefine what college means.

Show Notes

Broke, Busted and Disgusted (Documentary): A pro-education documentary exploring traditional and alternative higher education institutions, and the rising costs of getting a degree.

Winning The Money Game: A Rule Book to Achieving Financial Success for Young People (Book): The book by Adam Carroll which is a guide to being debt free and gain financial freedom.

Inequality For All (Documentary): One of the best ways to help people understand the challenges we face, is with a movie that can grab an audience and move them to action. And this movie will do exactly that. — Robert Reich

Is College Worth It? (Book): A Former United States Secretary of Education and a Liberal Arts Graduate Expose the Broken Promise of Higher Education.

Debt Reduction Snowball Calculator via Vertex42.com: A site for excel spreadsheet nerds. Debt elimination spreadsheet.

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Have you ever thought about starting a Kickstarter campaign? We interview Chez Brungraber about how she did it for her travel bag.

It takes some doing to get people to give you money for something that doesn’t yet exist. Chez tells us how she did it.

Kickstarter is a place to get funding for a product that is still a prototype or a project that hasn’t been completed. The first rule is to have a product that you believe in. Once you have that, you have to get the word out, friends, family, bloggers, media.

You have to keep your backers updated with how the project is progressing and when they can expect it to be complete. Chez’s company makes money but not enough to make large capital investments in things like new products. And it doesn’t make enough for a bank loan. That’s why she chose to fund this way.

You have to hit your funding goal in order to receive the money towards your project. That sense of urgency helps to reach the goal. Most campaigns over $10,000 fail on Kickstarter so don’t ask for an insane amount of money. Keep in mind too that Kickstarter will take a percentage of your earnings, so factor that in.

Once the goal is reached, you can set a “stretch goal.” Extra features that will be added to the existing product as higher funding goals are met. Chez recommends making sure you know what your stretches will be before starting the campaign. She had three days to come up with her first.

Kickstarter isn’t a place for free money. Chez took four months to craft her initial campaign and more time to change it for her stretch goals. Make sure you have your basics set up, you’re incorporated, have a business bank account, you can’t deposit that money into your checking account! There are tax implications too.

Kickstarter can be a great place for small businesses to get funding but do your research before starting a campaign.

Show Notes

Pumpking: A pumpkin beer from Southern Tier.

Kickstarter: Chez’s new campaign for her travel bag.

Gobigear.com: Here you can find more of Chez’s awesome gear

LMM Community: Join the money revolution!

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Mr Money Mustache didn't retire because he was making so much money from his blog. He had actually been retired for six years before he started writing. The blog was born when he looked around at his friends who had good jobs but were still living paycheck to paycheck.

They bought into what has long been sold as the American Dream; go to college, get a job, buy a house, fill that house with as much stuff as it can hold (and when it can't hold anymore, rent a storage unit), have some kids, and get stuck in an unfulfilling job, dreaming of freedom that will always be out of reach.

Retire, maybe at 65 if you're lucky, and live out your days, just kind of existing, hoping your money will outlast you. The best years of your life long past. But what if you could be retired by thirty?

MMM started the blog out of frustration, he wanted to show them, and now us, that they could do what he did. And an empire started.

Original Broadcast Date September 8, 2014

Full Article Here

Show Notes

Mr Money Mustache: Everything you need to know to retire early.

The 4 Pillars of Investing: A book that helped MMM get his start.

Betterment: Start investing your 50% today.

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