basics of velocity banking.

So, what is velocity banking? It is a cash flow management strategy and philosophy that will allow you to easily pay off your debts in record time without really changing your lifestyle. This, in turn, will allow you to pay much less interest than you normally would and maintain control and liquidity of your money.

First things first, what do we need to do to engage in velocity banking? First, we need a budget. Here we have the average American’s budget: $5,000 of income, $3,000 expenses, and $2,000 of savings. Now, I did exaggerate here because if you look at the most recent statistics, the average American lives paycheck to paycheck, but let’s assume for this example that this person has $2,000 in savings each month.

Next, we need an expense breakdown. Here, we have a student loan, a car loan, rent, and other expenses. What’s really important when doing the expense breakdown is making sure that every single debt—whether it’s a loan, credit card, or something else—is listed as its own line item. Every debt is eating up our cash flow, and our main goal is to eliminate that debt to increase our cash flow.

Now that we have our budget—$3,000 in expenses and $5,000 in income—we need our tool: a line of credit. There are various types of lines of credit: personal lines, business lines, home equity lines, and credit cards. Credit cards are a line of credit, although they work a bit differently from the others. A line of credit allows us to borrow money, pay it back, and then borrow again, unlike a loan, which is a one-way street.

For this example, let’s say I get a $25,000 personal line of credit with a 15% interest rate. The type and amount of line of credit you qualify for will depend on your income and credit profile. This line of credit will be our main tool to pay off debts.

Traditionally, income comes into a checking account, and expenses are paid from it. With velocity banking, we’ll dump all our income into the line of credit and pay our expenses from it. Let’s say we still have the same $5,000 paycheck and $3,000 in expenses. Our goal is to eliminate as many debts as possible by transferring them into the line of credit, which increases cash flow.

For instance, if we transfer two debts totaling $23,000 to the $25,000 line of credit, our expenses drop from $3,000 to $2,000. This is because we’ve eliminated those debts, and now our cash flow is $3,000. Savings are no longer idle money; we use the line of credit as a dynamic tool, putting our paycheck into it, paying expenses, and repeating the process.

Each month, our cash flow decreases the line of credit balance. Starting with a $23,000 balance, we put in our $5,000 paycheck, reducing the balance to $18,000. After paying $2,000 in expenses, the balance becomes $20,000. Repeating this, we pay off the debt in about seven months, while maintaining liquidity and control.

Using the line of credit incurs interest, which is calculated by multiplying the average daily balance by the annual interest rate (15%) and dividing by 12. For simplicity, let’s estimate the total interest over the payoff period as $1,000. This means we paid $1,000 in interest to eliminate $23,000 in debt in just seven months, significantly improving cash flow.

The flexibility of a line of credit also provides security. Unlike paying directly into a loan, where extra payments are inaccessible, a line of credit lets you reuse available funds if unexpected expenses arise. This makes it a superior strategy to overpaying loans directly.

Velocity banking allows you to pay off debts quickly, increase cash flow, and maintain financial control. If you have any questions, please leave them in the comments.