Revolving Credit and Cash Control

What sparked this write up were a few questions from CC members about how revolving credit/line of credit facilities. See one of these below:

“We are currently trialling the Cash Control system, and while we like the concept, we have a problem because we have a revolving credit facility on our mortgage.  Do you have any advice on how we could implement the bucket system, without setting up extra bank accounts that will end up costing us in interest on the revolving credit account?”

 
It's a great idea to use a revolving credit facility to reduce your interest day by day. It can cut some serious years off your mortgage, without needing any extra income! As a CC member you can find out from a Cash Coach how this can work for you.

For a revolving credit, the CC system works the same - you still have your three buckets. The Big Ticket and Savings are “virtual buckets” within your revolving credit. They don’t have their own accounts. Let me explain.

 
Virtual Big Ticket Bucket

Ok so you will have to place your Big Ticket bucket in your transaction account, rather than it’s own account. In this sense it becomes a "virtual bucket". You planned the amount that needs to go into this bucket each month, but you can't have a separate account. Instead the monthly amount is split off into a “virtual bucket” that sits within your revolving credit. You are just “parking” it in your mortgage rather than a separate account.

What this means is that you need to be so good on tracking your Big Ticket spending each month! You won't have the luxury of a separate account so it won’t be as clear how you are going on the Big Ticket front. So you really need to do your tracking each month and make sure you don't overspend on that bucket. If that bucket is being overspent you won't nail that mortgage as quickly as you should!

Virtual Savings Bucket

The same applies to your savings bucket. Your savings will sit in another virtual bucket in your revolving credit. You are just parking your savings here rather than in a separate account. Again you need to track! You should be taking the savings figure from your CC plan and checking each month that your revolving credit balance drops by this much. It should because if you stick to your BT and you spend only your weekly cash then you can't miss! Your revolving credit balance should automatically drop by $xxxx (savings) per month.

Stick to the Cash Diet

The cash diet works the same for a revolving credit and I would recommend sticking to cash for your weekly expenses as this is the biggest and most silent drain for most people’s money. The slight interest saving for just weekly spending is not worth resorting to plastic where it is too easy to loose track!

So track your BT and savings, stick to your cash diet and head confidently towards your goals!