Depending on your credit history, you may be approved for a large line of credit or a smaller amount. If you’re unable to secure much credit, that’s not a big deal. What you need to do is use the credit line wisely.
The following is an overall view of the strategy. As you read further, the report will go into greater detail, thus allowing you to understand the cycling theory better.
Imagine that you get a line of credit with a $10,000 limit and your income is $3,600 a month. In this exercise, you use $6,000 of your credit line to pay towards your mortgage. This leaves $4,000 in reserve in your credit line. Use the reserve as a way to pay off unexpected expenses or emergencies so that you never have to worry about getting sidetracked or losing sight of your main goal. It is important you never use your reserve for impulse purchases. In fact, it’s advised that you never use this reserve money at all. You don’t need a home theater system. You need to get your mortgage paid off early! Don’t let yourself be tempted.
I do want to mention though…and make note of this because this is a major factor and advantage over traditional pre-payment plans. The reserve money in your line of credit plays a very important role in cycling because it supplies a buffer of security in case a financial emergency does arise.
If you tried to mimic the effects of cycling by just placing all your monthly surplus money directly against your mortgage principal then you would be left without any money to handle financial emergencies.
Once you have the credit line set up, choose one credit card that you will use to take care of your monthly bills and expenses (I’ll explain that process shortly). You do need to keep in mind that the card you use for these regular expenses must be paid in full every month. Don’t leave one dollar on the card or this strategy will not be effective.
Remember, if you have many different debts, you’ll need to pay off the ones with the highest interest rates before taking this concept on with your mortgage. This will save you both time and money. Mortgage cycling is not only designed to make you mortgage free but also entirely debt free.
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