I've been drowning in credit card debt at least 12 times.
I didn't know the best way to use them.
"The principle of a line of credit is liquid."
~Christy Van
Are you done living off beans and rice and still feeling broke?
What if you have an emergency and $1,000 doesn't cover it?
Your credit card balances have gotten out of control, and you're unsure what to do.
If any of this sounds familiar, Velocity Banking could be the tool you need to clean up your debt.
What do you need to use this method?
Good to go? Let's move on.
Know your numbers
Write down your income.
Write down all your expenses.
Subtract your expenses total from the income (This number is your monthly cash flow)
With your expenses, they include:
Example of budget
$900 Rent
$120 gas
$508 in Subscriptions
$37.06 Electric
$300 Food
$115 Internet
$0 Amex card 19.90% APR min payment $25
$747 Wells Fargo minimum payment is $25
$100 Car insurance
$203 Quick Silver card 0% APR until December. Min payment is $25
$227 Citibank credit card 29% APR min $30
Total $2,190.06
$2,400 in income
$2,190.06 Expenses
$473 Cash flow
$1,500 expenses on the card
In the example, rent is the only expense that couldn't go onto a credit card. The expenses can be charged to the Wells Fargo Visa Credit card.
Next, the city bank card will be paid.
Paypal has a higher monthly payment than Quick Silver, so it's next.
Because PayPal is not a line of credit typically used for living expenses, this balance is best paid off as quickly as possible using the $473 in cash flow.
Plan your strategy
The great thing about the velocity method is that you can customize it to fit your situation and needs.
Knowing your numbers is key to getting an accurate picture of your time frame for becoming debt free.
Be sure that you include all of your expenses:
Those are examples of some that are easy to overlook.
How to gain cashflow
Even if you have multiple cards.
Transferring your income to the card will satisfy the minimum payment and immediately bring the balance down.
Yes, the balance will build back up, but every month you transfer your income onto the card, the balance will be less than the previous month; thus decreasing the average daily balance that interest charges are based on.
Sometimes it feels like you need to make progress faster. This differs from getting your tax return and paying large chunks of debt simultaneously.
Velocity banking is about delayed gratification and consistency.
Should I use my savings?
It will make sense to use your savings if you are about to pay high-interest rates in certain situations.
By paying the debt off faster with your savings, you save yourself money in the long run.
Sit down and run your numbers. Do the math on how much you will be paying with the savings and without interest.
Rewards
If you have cash rewards built into your cards, consider using them to decrease balances.
I've saved rewards before as another form of an emergency fund. They came in handy during a job transition and allowed me to change jobs without debt.
Some cards make it easier than others to use your points. Most stores will also allow you to use rewards for a purchase.
Zero-interest balance transfer cards
If high balances kill you on interest, getting a zero percent interest credit card can be a game changer.
These cards typically have a transfer fee of around 3%, but even with the fees, you are still paying less by cutting that interest.
These cards can be expected to require a credit score of 690 or higher.
If you are not there yet, don't despair. Applying this method and bringing your debt down for 2-3 months will improve your credit scores.
Watch your credit score go up.
Wait those 2-3 months and keep your inquiries low on your credit report, and watch that score steadily rise.
Make that income transfer payment to your card as soon as you get paid. Keeping the balances down and making frequent payments can also improve that score.
This gets you to that score where you can get approved for better and better cards.
Thanks for reading, and please leave your questions and comments.
