HBSDE vs Extra Payments How does the HELOC Based System of Debt Elimination (HBSDE) compare with just making extra payments? If you have $50 extra each month in your budget, which method would payoff the debt with the least amount of expense? Using the HBSDE? Or just making Extra Payments? I will use My Debt Elimination Calculator to generate estimates using both methods. $2,000 Loan Let's assume that you borrowed $2000 with a one year loan at 8%. We'll assume that the monthly payment on the loan is $175 and is due on the 25th of the month. Also assume that you have monthly income of $4000, paid twice a month, on the 1st and 15th. Your expenses are paid twice a month: $1880 on the 10th and $1895 on the 20th. Your expense and income payment schedule looks like the following: Date Financial Event Amount 1st Income  $2,000 10th Expense  ($1,880) 15th Income  $2,000 20th Expense  ($1,895) 25th Loan Payment  ($175) This "budget" leaves $50 of income left over each month after all the bills have been paid. $2,000 Loan with $50 Extra Payment How much sooner does the loan get paid off if the extra $50 is paid toward the principal and how much is saved? My Debt Elimination Calculator generates the following results: The results show that the loan will be paid off 2 month earlier this way, saving $18.59 in interest. The complete estimate is found by clicking here. (You will need Adobe Reader to look at the examples.) The Transaction Details show each individual financial event Feel free to verify the math. (My Debt Elimination Calculator can be used in this way by first setting the HELOC injection amount to $0 and by setting the income and expenses so that there is always income available to cover all the expenses. Notice that in the Transaction Details of the estimate the HELOC never has a balance.) $2,000 Loan using HBSDE So what do the results look like using the HELOC Based System of Debt Elimination? First we define the details of the HELOC. Use a HELOC with a $5,000 credit limit at a 25% interest rate. (25%!?! We're going to borrow money at 25% to try to save money on an 8% loan? Yes, we are.) Next, define how much of an advance or injection we are going to take from the HELOC to pay down the loan. We could guess. Instead we'll use My Debt Elimination Calculator's optimal injection amount calculation feature. It determines that the optimal injection amount is $120. With all this information, My Debt Elimination Calculator generates the following results: The results show that the loan will be paid off 2 months early - the same as the Extra Payment technique. The results also show that $20.61 will be saved in interest. That is a difference of $2.02!  By advancing money from a HELOC charging a 25% annual interest rate, the $2,000 loan was paid off just as quickly and with less expense than if you made extra princial payments of $50 a month. The complete estimate is found by clicking here. The $2,000 loan was used to demonstrate that the HBSDE can do better and to keep the number of Transaction Details small so that the numbers could realistically be verified. However, even I wouldn't get a HELOC (and potentially pay closing costs) to save $2.02. So let's take a look at a larger loan. $100,000 Loan So lets change the loan to a $100,000 30 year mortgage with an interest rate of  7%. The monthly payment is $665.30 (which actually leaves a 361st payment of $3.00 on the loan which would be added into the 360th payment.) The income will be kept the same, but the expenses will be adjusted to account for the larger loan payment. The new expense and income payment schedule looks like the following: Date Financial Event Amount 1st Income  $2,000 10th Expense  ($1,642.35) 15th Income  $2,000 20th Expense  ($1,642.35) 25th Loan Payment  ($665.30) Once again, this "budget" leaves $50 of income left over each month after all the bills have been paid. $100,000 Loan with $50 Extra Payment My Debt Elimination Calculator generates the following results: The results show that the loan will be paid off nearly 6 years early saving $31,655.19 in interest. Definitely some results to get excited about! So how did the HBSDE do? The complete estimate is found by clicking here. $100,000 Loan using HBSDE The HELOC credit limit is $5,000 and the interest rate is still 25%, but this time the optimal injection amount is calculated to be $340.  My Debt Elimination Calculator generates the following results: Once again, the estimate demonstrates that the loan will be paid off in the same amount of time. This time the HELOC Based System saved an additional $378.47 over the extra payment method. The complete estimate is found by clicking here. $100,000 Loan using HBSDE with HELOC at 10% The above example is definitely interesting, but my HELOC interest rate is currently 5.25%. An interest rate of 25% is not representative of rates at the moment. What if the HELOC interest rate is only 10%? How would the numbers change? With the different interest rate, the optimal injection amount is now computed to be $2,350. My Debt Elimination Calculator generates the following results: Now the results are even more interesting. At the 10% interest rate, the HELOC Based System paid off the debt 3 months earlier and for $2,550.65 less than the extra payment method! The complete estimate is found by clicking here. The problem with the previous examples is that life doesn't work the way the scenarios were setup. Hopefully, our income increases over 25 years and doesn't remain static. Surely, our expenses don't stay the same over that period of time.  (Can you say oil prices!) Real life happens. That is one reason My Debt Elimination Calculator creates estimates. All this tool can do is estimate (or simulate) what will happen over time if the income and expense information remains as predicted. So when real life happens, what does the HELOC Based System do to absorb the real life event? $2,000 Loan with $50 Extra Payment and $300 Car Repair on Credit Card To demonstrate a "Real Life" event let's return to the $2,000 loan example - just to keep the math simple. The "Real Life" event is a $300 car repair bill that is paid the 3rd month into the loan term. The Extra Payment method only has $50 available to pay for the car repair. Since $50 isn't enough to cover it, the car repair is put on a credit card charging a 12% annual interest rate. Each month the extra $50 will be used to pay down the credit card balance. I am not able to use My Debt Elimination Calculator to generate this result, so I had to compute it manually: $2,000 Loan using HBSDE with $300 Car Repair Thankfully, I can let My Debt Elimination Calculator generate this result! We will go back to using a HELOC with a $5,000 credit limit at a 25% annual interest rate and an injection amount of $120. If you look closely at the Transaction Details, you will see that the car repair was paid by taking $300 directly out of the HELOC. My Debt Elimination Calculator generates the following results: Just like the Extra Payment method, the loan and car repair was paid off in 11 months. The total cost using the HELOC Based System is $2,385.06 ($2085.06 + $300.) This is cheaper by $4.72! The complete estimate is found by clicking here. In the "Real Life" example, the HELOC based system paid off the debt in the same amount of time and increased the amount that was saved overall. It did this while not overly stressing out the financial situation - more money was available if needed from HELOC - whereas the Extra Payment method is strapped - the only extra money available is from the credit card. (Technically, both cases are borrowing money to get the bills paid. With the HELOC Based System, I never feel that I am borrowing "new" money - I always feel that I am using equity from my house. To me, there is difference - at least a psycologically.) Does the HBSDE always do better? I seriously doubt it. With that said, I have not yet been able to construct an example using the optimal injection amount as calculated by My Debt Elimination Calculator where the Extra Payment method wins. However, you can very easily use an "unoptimal" injection amount and do worse than the Extra Payment method. Of course, when the difference is pennies or even hundreds of dollars, you have to take into account the price you pay for your HELOC product to determine if it is worth it.