Velocity banking?

Sumof999

Hi I've fallen down a rabbit hole on YouTube and watched a couple of videos where people (US) pay their income onto credit card and then pay bills (utilities not mortgage) out of it.  The aim being that throughout the month the credit card balance goes right down and this would help both credit score possibly but also reduce interest.  I'm intrigued by this - has anyone done something similar?  

CliveOfIndia

Your credit score is meaningless in the UK (unlike the US), so that point is irrelevant for starters.

Secondly, it's against the T&Cs of UK cards to deliberately put it into credit.  Theoretically it could result in your account being closed, more usually the attempt to load up a positive credit is either rejected or else the funds are returned to the originating bank account.

Not sure what you mean by reducing interest - there's no interest to pay anyway if you just use the credit card normally and pay it off in full when the statement arrives.

Sumof999

CliveOfIndia said:

Your credit score is meaningless in the UK (unlike the US), so that point is irrelevant for starters.

Secondly, it's against the T&Cs of UK cards to deliberately put it into credit.  Theoretically it could result in your account being closed, more usually the attempt to load up a positive credit is either rejected or else the funds are returned to the originating bank account.

Not sure what you mean by reducing interest - there's no interest to pay anyway if you just use the credit card normally and pay it off in full when the statement arrives.

hi thanks for your comment.  Sorry I should have been clearer.  This would be on a credit card where there is a balance and I am being charged interest.  The credit card wouldn't ever go into credit but I would use this as a tool potentially to reduce the interest being charged each month.

CliveOfIndia

Well, yes, if you make any payment to a credit card you will reduce the balance and therefore the interest that you'll be charged.  But there's nothing to be gained from using the card to pay your utility bills, all you're doing there is increasing the card debt and therefore increasing the interest you're paying (assuming you're not clearing it in full every month).

The only benefit to paying utility bills by card would be if you're earning cashback or points of some kind - and even then, you still need to be clearing it in full every month, otherwise the interest you'd have to pay would far outstrip the value of any rewards you might earn.

Slinky

They do odd things with finance in the US. We visited Las Vegas several years, and casinos would cash paychecks. What does that tell you?!

Brie

It's a great idea if you have a cash back card of some sort so get the extras from using your card even more than you might normally.

Also while it might be noted on the T&Cs for some (but not all) UK CCs that you aren't allowed a credit balance the card companies accept that it happens.  In my opinion they will only get cranky if it happens too often.  

I think the US scenario would be something like you owe $800 on your CC and put your $900 pay onto the card making your $100 in credit.  You immediately go out and buy your groceries and pay your phone bill costing $101 and so are no longer in credit so no one's cranky.  You then make your $300 mortgage payment, buy more groceries, pay your utilities and put gas in your car and end the month owing $800 which you then clear with your next $900 paycheque.  You accumulate lots of points or $s back and your (US) credit score looks rosy so they will up your card limit.  

DjangoUnchained

as most people on this forum are here because their card use got out of control i suggest that this is a recipe for disaster, the savings made are minimal compared to the risks involved if you cant keep on top of it.

Pamsy56

Hi, glad I looked at this site I was going to do this but found that if I pay some bills through my credit card I will be charged as they class it as using cash so I would be paying a lot more on my credit card, so thank you so much 

rlm1234

Hi, I've watched a few of these videos and I think you're missing a major feature of what velocity banking is all about: the aim is to use your credit card for all expenditure that can be put on a cc, e.g. things like shopping, petrol, electricity and so on (but not your mortgage, rent or to pay off another credit card).  You would then make a payment to the card for the total amount of the expenditure.  Let's say it comes to £1,000, so that's the payment you will make.  In doing this, the credit card payment will be swallowed up in the payment.  So for example, if the cc payment is usually £200 per month, it will be paid when you make the payment of £1,000, thereby increasing your cash flow per month (meaning you would have an extra £200 to play with).  At the same time you have reduced your cc bill at the start of the month by £1,000.  Obviously as the month goes on and you are paying for your shopping etc, the balance on the cc will come back up again, but the point is it won't happen straight away so the interest won't be as much.  I would recommend watching Christy Vann (Vanntastic Finance), videos, she explains it really well and I think for some people it could really help them get back on track.

Sumof999

hi @rlm1234 yes agree that's where I first heard of it and I've actually been doing that to help me clear debt and focus on the other debts so I'm freeing up the minimum payment on one of the credit cards by doing this - glad you get what I mean even though I didn't actually explain it well or at all really!

rlm1234

No worries, I'm glad it's working for you.  I started with this in early December and even with all the expense of Christmas and a huge electricity bill, I'm still staying afloat and I'm hopeful that I will be able to pay off one or maybe two credit cards this year.  It's quite a simple method but it definitely works!