Velocity Banking: Use Debt to Pay Off Debt
Do you know you can use debt to pay off debt with the debt snowball and velocity banking? Yes, you can. You just have to use debt responsibly so you are able to use it to systematically wipe out all your debts.
Psalms 34:2, 9, 17-18, 19-20 2 I will praise Yahweh from my heart; let the humble hear and rejoice. 9 Fear Yahweh, you his holy ones; those who fear him lack for nothing. 17 They cry in anguish and Yahweh hears, and rescues them from all their troubles. 18 Yahweh is near to the broken-hearted, he helps those whose spirit is crushed. 19 Though hardships without number beset the upright, Yahweh brings rescue from them all. 20 Yahweh takes care of all their bones, not one of them will be broken.
Using Debt to Pay off Debt with Velocity Banking
Did I make a mistake?
Yesterday, all of a sudden, I got a text from Home Credit, a financial company that grants credit for appliance purchases, informing me that I’m eligible for a cash loan.
I’ve availed of their service before in purchasing an appliance and gadget at zero interest.
Now they’ve made this cash loan offer available for me until May 28, 2022.
So they asked for information about my monthly income which I gave them. Do you know how much cash loan amount they offered me? It’s for 127k!
Exactly just how much (maybe a bit more) I need to pay off all my existing debts!
I tried to apply initially just to see how much I need to pay monthly and at what interest rate cause they didn’t state it.
It turned out they offer it at 1.871% interest per month for 42 months (3.5 years). Way lower than my current debts’ interest rates at 3% and 6.5% per month.
If I get approved, they’ll only get off the top 500 as processing fee. And I’ll be paying 5,400 per month for 42 months.
On top of that, I can choose to avail of their flexible payment option for a bit more fee every month. This means I can choose to pay off this loan ahead of schedule and save up on interest rates.
Wow. Exactly what I prayed for! That I will be able to pay off my debts fast.
This way I can consolidate all my higher interest rate debts into one lower interest rate debt. The only catch is that it’ll be 3.5 years before I’ll be totally debt-free, aside from my mortgage, if I choose to pay this according to schedule.
Applying the Debt Snowball concept to paying my debts
Actually, before I got this offer, I thought hard about how I can debt snowball these debts without borrowing anew cause I didn’t have any more line of credit available.
If I continue saving 2,500 per week which I started doing last week, having decided to pay myself second (in savings) after paying God first (in tithe), I can save 10k a month.
In 3 months, I’ll have 30k extra to pay off one debt at 3% and free up 6k/month (my monthly minimum payment for that debt).
Then I can add that 6k/month to my current 10k/month savings and in just 3-4 months pay off another loan at 3% per month with a monthly minimum payment of 6.5k/month, freeing up 22k of my Cashflow!
Consequently, continuing this debt snowball, I can already estimate that I’ll be debt-free by December of this year and can start putting these 22k freed up Cashflow all into savings for my wealth capture account!
Debt Snowball with Velocity Banking
But then yesterday I got the Home Credit offer and after praying and talking to my mama about it, I decided to avail of it so I can pay off everything this month saving me 23k plus on interest from the loans.
My goodness, sometimes my impatience really gets the better of me.
Now I’ll only have 16k in Cashflow and not 22k having to pay 5.4k/month for this new Home Credit loan starting next month.
But I’m 8 mos ahead of schedule cause I initially plan to pay off all these existing loans by December but now I could pay them off this month.
Now with 16k Cashflow, I can save up to focus on paying down this Home Credit debt.
God willing, nothing else happens within the next few months ahead that will use up my Cashflow anew, I could pay off this 127k debt in 6 mos (by October) instead of 3.5 years!
On top of that, paying off this debt early will hopefully increase my credit score with Home Credit and I’ll have this line of credit for future investments.
Wow, amazing. Thank you, Lord, for the velocity banking concept, wisdom that You have given me.
What I have learned with Velocity banking is to keep the money moving using credit wisely to my advantage to gain me interest, not pay it, as well as increase my cashflow.
That’s why they said Cashflow is king, not accumulation.
Help me, Lord, to implement this plan that You have shown me to make me debt-free by October!
How Do I Get Started with Velocity Banking
Do you have debts you want to pay off fast?
Try using Velocity Banking.
So, what is Velocity Banking?
Here’s a simple definition of Velocity Banking according to LifeBenefits blog:
Velocity banking is a strategy where you use a line of credit as your primary account and use lump sums to pay off a loan, usually a mortgage. The idea behind this is that using a line of credit will help you use your cash flow and extra money to cover your expenses but also go toward paying off your mortgage.
It only means keeping your money moving and using debt tools responsibly to help you pay off these debts.
Here’s what you can do to start off this process:
1. Pay God first (tithe 10%).
This will “insure” the rest of your 90% with God’s blessing. Trust me, a blessed 90% will go a loooong way than an unblessed 100%.
So pay that tithe first to God to your local church. And with your tithe in an envelope, write down and claim all that your heart desires. Don’t worry about asking, you’re just claiming what He promised in Malachi 3:10:
10 Bring the whole tithe into the storehouse, that there may be food in my house. Test me in this,” says the Lord Almighty, “and see if I will not throw open the floodgates of heaven and pour out so much blessing that there will not be room enough to store it.
2. Pay yourself second and put it in a Wealth Capture Fund savings account.
If you have a lot of bills, debts, and expenses start with 10% and live off with the 80%.
But if you want to really start the debt snowballing and velocity banking fast,
Apply the 10-20-70 Money Management Rule
That’s my 10-20-70 Rule of money management: 10% to God, 20% for wealth capture, 70% for living expenses.
You say you can’t tithe and save? You can. Just take these off the top first and foremost – 10% tithe, 10-20% savings. Then live off within the remaining 70-80%.
Why take the 30% off first to pay God and yourself before paying all else? You’re just assigning your money a place and confining your expenses to their assignment. So you can fight Parkinson’s Law.
Fight Parkinson’s Law
Have you heard of the Parkinson’s Law?
It says that work expands according to the time alloted to it.
If you have a task to complete in a week, you’ll finish it in a week even though you can finish it in a day. Because you alloted 1 week for the task, work expands to 1 week.
But if you alloted a week’s work in an hour, you can definitely finish it in an hour.
That’s why we’re encouraged to set deadlines for tasks so that work won’t expand more than it should.
This is one of the 2 powerful laws effectively applied in Tim Ferris’ book 4 hour Work Week.
Meaning if you do 10 tasks, only 2 of that (20%) really gives you 80% of your desired results.
So you need to find that essential 20% and do more of it so you can work less and have more.
Just a bonus tip for productivity that I’ve applied in my life and business.
Back to Parkinson’s Law. The same way it works with your tasks, it will also work with your money.
According to Parkinson's Law: Your expenses will expand according to your income.
You’ve experienced that, right? You live on just a small income and you hope to have an increase so you can have extra. But when you get to have that increase, your expenses also increase. What a bummer! Well, that’s Parkinson’s Law for you.
So fight Parkinson’s Law. When it comes to tasks, you set a deadline for every task so it wouldn’t expand.
When it comes to your money, you set an assignment for your money with a budget so your expenses will not expand. Use the envelope system to start.
Use the Envelope System
When you get your paycheck or income, get 10% first, and put it in an envelope ready for giving to your Church on Sunday with your written heart’s desires for God to bless and answer.
And then take 20%, put it in another envelope ready to deposit to your wealth capture savings account. If you do online banking, just transfer it immediately to your wealth capture savings account before you even touch the rest of your income.
By the way, make this Wealth Capture Fund savings account separate from your ordinary savings account where you receive your salary or you put your basic expenses.
It has to be a Wealth Capture Fund account dedicated for you to save for investments/entrepreneurship and not for consumption. Do not touch it except to fund a business, an investment, or buy an asset, something that brings money into your pocket.
Then just assign the rest of your 70-80% with specific assignments: food, Transpo, electricity, etc.
This way, you keep your expenses from expanding beyond your means.
3. Create your Peace of Mind account (debt tool) for Velocity Banking: Use this debt tool to pay off your debts or your bills
Next, as soon as you can save a substantial amount like 10-20k from your Wealth Capture Fund, put it in an account where you can use it as collateral to borrow from.
This will be the debt tool that you can use for your Velocity Banking system.
I call it my Peace of Mind account.
You can deposit it in a time deposit with your bank or credit union. This will be your revolving credit line to pay your minimum monthly payments for loans and bills early or in time.
With the bank, you can apply for a credit card with this account and this amount as credit limit and borrow a secure loan with this savings as collateral. I think they call it “convert to cash” which has a much lesser interest rate than using a credit card.
Every month, you’ll put in here from your salary the amount you need to pay off all your bills and debts for that month. And then borrow from your bank, with these savings as collateral, the same amount you need to pay that month. Then Pay your bills or debts.
This way, whether your salary gets delayed, like mine always do, or you don’t have enough made yet, you have this account to borrow from to make sure you pay your bills on time. Then when your income comes in just put it in that account.
See? Peace of Mind. That’s the reason for the name of the account.
Pay off debt according to the Cashflow Index
How do I know which loans to pay off first?
List all your debts with their remaining balance, required minimum payment per month, and interest rate. Then take the Cashflow Index (CFI) for each of the debts: balance/minimum monthly payment = CFI.
After that, arrange your debts with the lowest CFI first. Pay that loan first – minimum monthly payment + whatever extra every month (or money from your debt tool) until it gets paid off. Then use that freed-up cash to debt snowball the rest in your list of debts from the lowest CFI to the highest.
4. Start your Velocity Banking on steroids: Family Privatized Infinite Banking System using Whole Life Insurance
When your wealth capture account grows to the amount for what you want to pay annually for your insurance policy premiums, example for me I want to fund my whole life insurance policy 100k per year, when this wealth capture account grows to 100k, I go buy my first insurance and every year after max fund it 100k from this wealth capture account.
Your insurance policy has both a death benefit and savings (this is what they call “cash value”). This cash value part you can now use as collateral to borrow money from the insurance company.
This insurance policy (using your cash value) will now be the cash cow for my own private banking system: to pay off and debt snowball all your remaining debts and future major purchases.
You have just started your own Family Privatized Infinite Banking System.
This will now be the place you go to take out loans instead of the bank: to purchase a car, buy a house, fund your child’s education, start a business, and go on trips and vacations.
Just make sure you pay your loan to this policy with interest, just like you do with your bank. So, instead of paying your bank interest like you did before, you’re now paying interest to yourself in your insurance policy allowing your money to grow there and earn compound interest.
Now your turn
See how all these work together?
If you want to pay off your debts, fast or slow, start with any one of the concepts we’ve talked about in this article.
That’s the wisdom of God given in answer to prayer.
Take one concept you know you can do and apply it in your life.
In all these, just continue to pray to God for wisdom and blessing.
You’ll see wonders. Cause He always hears the cry of the poor.
17 The Lord hears good people when they cry out to him,. and he saves them from all their troubles. Psalm 34
- Pay God first, then pay yourself second
- Use your savings to debt snowball your debts or use velocity banking by putting it in a debt tool to use as collateral which you can borrow from (secured line of credit) to pay off debts.
- Continue to ask God for wisdom and blessings to help you pay off debt.
Thank You for wisdom about Velocity Banking to help me wisely manage the money You have given me. Bless me so I can bless others too. In Jesus’ Name. Amen.
This is it for now. Till next time.
To our health, wealth, and victory – GODSPEED!