What is Velocity Banking? Unveiling a Powerful Financial Strategy
Perhaps you’ve heard this new, catchy term flying around and wondered: “What is Velocity Banking?”
In the world of personal finance, strategies abound for paying off debts and building wealth. One such strategy that has gained popularity is Velocity Banking.
But what exactly is it, and can it help you achieve your financial goals?
More importantly, is Velocity Banking a good fit for you and your financial situation?
Let's dive into this powerful financial technique to uncover its benefits and workings.
Decoding Velocity Banking: What Is It?
Velocity Banking is a financial strategy that involves using a line of credit, such as a home equity line of credit or HELOC, to pay off debts quickly.
The goal is to accelerate debt repayment by leveraging the liquidity of the line of credit to reduce interest costs and pay down principal balances faster.
Velocity Banking aims to minimize interest payments by selecting the most optimal type of debt possible.
Here’s an example: Let’s say you have $10,000 in credit card debt. This debt continues to wrack up interest charges at obscene rates, like 25%. You may regular payments, but the balance barely seems to go down.
With Velocity Banking, you use a HELOC as a “financial tool” to wipe out this high-interest credit card debt in either one payment or a series of payments.
Ideally, the HELOC comes with a much lower interest rate (6-10%, perhaps) that allows you to pay down the debt much faster than if you continued chipping away at the credit card on its own.
This is where the term “velocity” comes in: We speed up the process by using lower-interest lines of credit.
How Does Velocity Banking Work?
The successful Velocity Banking campaign involves several careful, specific steps that are particular to each person deploying them.
However, the Velocity Banking process almost always involves each of these steps:
Step 1: Establish a Line of Credit:
Open a line of credit, typically a HELOC, with a bank or financial institution.
This requires that you own a house and have some debt-to-value ratio to work with.
If you do not own a house, the options for a line of credit (LOC) are limited and typically come with higher interest rates, so this is one reason why Velocity Banking is a strategy exclusively used by homeowners.
Step 2: Consolidate Debts:
Transfer your high-interest debts (such as credit card balances, student loans, or personal loans) into the line of credit.
This is a good moment to pause and stress the importance of working with a reliable and ethical financial coach. A great coach can help you arrange these transfers with ease, as doing it on your own can be frustrating and cumbersome.
At Trusted Covenant, we’re happy to assist you as you begin the process of planning your Velocity Banking strategy, specifically by connecting you with one of the experts in this field Denzel Rodriguez.
Step 3: Strategic Payments:
Use income or cash flow to make substantial payments toward the line of credit balance.
Now that your debts have been consolidated under the HELOC, it’s time to start paying them down.
Even though the interest rate is lower, debt is still debt, and you need to get rid of it as soon as possible!
Step 4: Reduce Interest Costs:
By paying down the line of credit (LOC) balance, less interest accrues, allowing more of each payment to go toward principal.
You may be familiar with the idea of a “debt snowball,” and this is that idea in essence.
As you pay down the balance, the amount of added interest will continually decrease, making your payments more and more valuable.
Step 5: Repeat the Cycle Until You’re Debt-Free!
As debts are paid off, continue cycling money through the line of credit to accelerate debt repayment.
In a Nutshell: The Benefits of Velocity Banking
Faster Debt Payoff: Accelerates the payoff timeline for debts, potentially saving thousands of dollars in interest.
Interest Savings: Reduces the total interest paid over the life of the debts.
Improved Cash Flow: Frees up monthly cash flow by consolidating debts into a single, lower-interest payment.
Think Velocity Banking is a good fit for you?
Schedule a risk-free call with us today to learn more!
Common Questions About Velocity Banking
Velocity Banking may sound incredibly simple and easy to execute.
However, it does come with important caveats. This method isn’t for everyone, especially those who lack certain assets and character traits.
Is Velocity Banking Risky?
Velocity Banking involves leveraging debt, so it requires discipline and careful financial management.
When executed correctly, it can be a powerful tool for debt reduction without added risk.
Can Anyone Use Velocity Banking?
While Velocity Banking can be beneficial for many individuals, it is essential to have a stable income and financial discipline.
Those with fluctuating incomes or inconsistent cash flow may find it challenging to maintain the strategy.
Is Velocity Banking a Good Fit For Me?
Velocity Banking is a good fit for people with 1) a steady income, 2) a home they can use to acquire a low-interest HELOC, 3) numerous high-interest debts, and 4) strong financial self-discipline. If these describe you, then Velocity Banking might be a great solution for your debt situation.
How to Successfully Implement Velocity Banking
Create a Detailed Budget:
Understand your monthly income, expenses, and debt obligations to create a strategic repayment plan.
Without a clear picture of how cash flows through your life, it is very hard to execute a Velocity Banking plan.
Allocate a Portion of Your Income Toward Extra Payments
To speedily pay off your debts, you need to build momentum through extra payments.
Even if you’re only able to add $50-100 per month, these extra payments add up! That’s $5-10 less in interest you have to pay each month.
As long as you can make an extra payment without accruing more debt, do it!
Track Your Progress:
Monitor your debt balances regularly to see the impact of your payments.
If you don’t have these account pages bookmarked, do so right away.
I recommend creating a Bookmark folder in Chrome / Edge / Firefox / Safari, and saving all your account home pages in one place. Use a clear and understandable labeling system to identify each account or debt.
Then choose a day and time each week to check your balances. If you’re not paying attention, you’re probably paying too much.
Celebrate Milestones:
As you pay off debts, celebrate your achievements with people who care about your and your financial freedom.
Use increments of $1,000 or $5,000 to create benchmarks for success.
A great way to do this is create a poster or sign that hangs in a prominent location in your house, such as your kitchen or bathroom. You can create a picture of a bucket or bottle or some other shape, and color in your progress.
And when you celebrate, don’t do it by spending a ton of money that you have to pay back later. Invite a few close, trusted friends to your house for a potluck and show.
Have fun while embodying your new financial lifestyle!
Stay Disciplined:
Avoid accruing new debt while using Velocity Banking.
It’s impossible to get yourself out of a hole by digging deeper!
Stick to your repayment plan and resist the temptation to use the line of credit for unnecessary expenses.
Recap: Is Velocity Banking Right for You?
Consider Your Financial Goals:
Evaluate whether your primary goal is to pay off debts quickly, save on interest costs, or improve cash flow. If you can answer ‘Yes’ to any of these, but preferably 2 or all 3, then Velocity Banking is probably a great fit for you.
Velocity Banking may be most beneficial for those with significant high-interest debts seeking a structured repayment plan.
Consult with a Financial Advisor:
Before diving into Velocity Banking, consider seeking advice from a financial advisor or planner.
They can assess your financial situation, goals, and risk tolerance to determine if Velocity Banking aligns with your objectives.
We’d love to help you create a structured Velocity Banking plan.
Just reach out with the button below to schedule a call!
Empower Your Financial Journey with Velocity Banking
If you’ve been asking, “What is Velocity Banking,” I hope you’ve gotten all the answers you’re looking for.
Velocity Banking presents a compelling strategy for those seeking to break free from the shackles of debt and build a stronger financial foundation. By strategically leveraging a line of credit, individuals can accelerate their debt repayment, save on interest costs, and improve overall cash flow.
However, success with Velocity Banking requires discipline, careful planning, and a clear understanding of one's financial goals.
Whether you're aiming to pay off debts faster, save on interest, or achieve greater financial freedom, Velocity Banking could be the key to unlocking your financial potential. Consider exploring this powerful strategy with the guidance of a financial professional to embark on a journey toward financial empowerment and prosperity.