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In using this plan you will need to pay off your monthly bills with your credit card. While expenses that can be paid off by credit card are growing every day, there are still some businesses that won’t accept plastic. Visa may work at the grocery store and gas station, but other bills may require you to pay in cash. No problem. You can almost always pay those bills with a check from your credit line.

• Income

These days, many of us have our paycheck automatically deposited into our checking account. Just as you would do with your automatic bills, simply contact your employer and have them switch the transfer to your line of credit. It’s that simple.

• Cash

We all need to have some cash on hand for simple things like our morning coffee. Try to get a line of credit that will allow you to pull cash out of an ATM or else transfer the cash you will need to your checking account. Important: Make sure that you won’t be charged extra for cash advances, even if you pay the balance back on the due date. Be aware that cash advances can have a per-use fee or a higher APR than charges. Read the fine print of your contract to find the rate and any applicable fees.

If you have any debts with a higher interest rate than your loan, such as credit cards, you should pay these off first. High interest debt will eat you alive. Try to find a low interest consolidation loan or look into refinancing your home at today’s low rates. Shop around – and remember, you can pay these off with the methods you learned above.

Make sure there aren’t any prepayment penalties associated with your loan. Just call your lender and ask. If there is one, find out the details and weigh your options. Cycling may still outweigh the prepayment penalties. For the most decisive look at your prepayment penalties, refer back to your mortgage contract. Regardless of what the lender tells you, the contract has the final say.

• Taxes

By now I’m sure some of you are asking if paying off your home early, is it a bad decision since you won’t be able to write the interest payments off on your taxes. Personally, I say no, it’s not a bad idea.

Here’s why: if you are in a 26% tax bracket and you write off $10,000 in interest payments, you will save $2,600 on your taxes. So it cost you $10,000 to save $2,600.

However, if you owned your home, you wouldn’t have to pay $10,000 in interest payments but you would have to pay $2,600 in taxes on this money, which would leave you with $7,400 in disposable income that you didn’t have to spend. Since everyone’s situation is different, I would recommend speaking with the person who handles your taxes to discuss your options.

Also remember that interest on LOC’s are tax deductible because they are based on the equity of a home. Interest on personal lines of credit or credit cards is not tax deductible.

• Investing

There is a bit of dilemma in considering whether to prepay on your loan versus using the money for investing. I would have to say, again, weigh your options. I am a firm believer in the importance of a diversified investment portfolio. This is a safeguard against times when certain holdings are not performing well. Therefore, I believe that cycling your mortgage is an excellent addition to just about any portfolio.

The investment you make when cycling your mortgage is virtually risk-free. It is stable and you always know what to expect. That is not always the case with many other investments. The simple fact of this matter is that the principal and interest on your loan must ultimately be repaid. So by implementing a Mortgage Cycling plan, you will be effectively and rapidly eliminating this debt. Once again, if you are unsure about how Mortgage Cycling may affect your finances, ask your advisor.

• Reverse Mortgages

A reverse mortgage is where you essentially loan money to the bank instead of them loaning money to you. If you already own your home, you can lend up to the amount of equity (appraised value) in the house to the bank! The bank then agrees to PAY YOU INTEREST for the length of the loan, which may be infinite. Though the interest on a reverse mortgage is likely not going to be what you would pay were you to take out a mortgage, it is a steady source of income. Once you have completed your Mortgage Cycling program and paid off your mortgage early, use this product to keep a stream of cash coming in without any additional cost to you.

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One of the most intimidating and frustrating parts of this exercise for many is securing the line of credit. Most people’s experience with credit is limited to mortgages, car loans and credit cards. If this is your situation, that’s fine. You are in the majority. Getting a credit line to cycle doesn’t have to be a scary experience. And, like most things in life, once you do it, the second time is a breeze.

First off, understand that there are two types of credit lines available to most people. You can choose between a personal line of credit and a line of credit based on the equity in your home (home equity line of credit). Both have advantages and disadvantages.

A personal line of credit will usually be approved in three days or less. The problem is personal credit lines are usually not very large. Also, since personal lines of credit are unsecured (meaning that there is no physical collateral backing them), the interest rate tends to be higher.

You can usually get more money from a home equity credit line, often with a lower interest rate, but it may take weeks or months for you get approved. Pick the one that you are more comfortable with.

You will be paying some interest on this loan so make sure that you obtain the lowest rate possible. This is important. Make sure that the interest rate you obtain for your credit line is a reasonable rate. This will be a big factor in your cycling success. So don’t be afraid to shop for the best rate.

Credit lines that will accept direct deposit and provide you with an ATM card are best, as are accounts that don’t charge you to write checks. You want to keep all of your expenses as low as possible!

When setting up your cycling plan you have to at some point decide how much money you are going to cycle and how often your cycles will repeat themselves. To decide how much of your credit line you should use, you have to figure out how much surplus you will have left over at the end of the month. Take that number and multiply by 11. Then add it to your monthly income.

To simplify things we are going to continue to use our example of having a $600 surplus each month. Multiply $600 by 11 and you get $6,600. Add your $3,600 income and we get $10,200. Therefore you should use about $10,000 from your credit line to pay against your mortgage each cycle. Some people prefer to cycle every six months instead of once a year. If that is your preference all you have to do is multiply by five instead of 11. The more often you can cycle, the faster you will have your mortgage paid off.

Here is a worksheet to show how simple it is:

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