Section 1: Using the BLOC to Manage Your Money

But Wait One Minute

You may be thinking that we basically traded $10,000 from your HVAC loan and placed the debt onto your BLOC — so where is the benefit?

You need to understand two things:

1. Compound vs. Simple Interest:
   your HVAC 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 a monthly payment you will need to make in order to reduce the loan to zero after 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 to the account, it forces the balance to be adjusted daily.
   
   Since your income goes into the account, the average daily balance remains low. You will all cases pay lower interest charges for the month than you would under 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.
   
   
   
2. Reducing the Equity Line Balance:
   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 your spending will automatically decease your BLOC balance.
   
   Budgeting your discretionary income by $1,000 each month will payoff the HVAC advance within one year.
   
   Example: