Velocity Banking

rlm1234

• I've watched a few videos on velocity banking on YouTube and I definitely think this is something worth trying.  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.  Any thoughts?

TheAble

It's fascinating stuff. Direct debit to pay balance in full in other words?

Brie

So you spend as much as possible on your card and pay it off in full each month?  Nothing the matter with that.

Oh wait you mention interest. So you're not paying it off in full.

Well one thing not all cards pay attention to what you pay during the month and will still take your DD no matter what.  But yes the more money you pay and the sooner you pay it the less interest will accrue, assuming there's an interest bearing amount.

My worry would be that given you already have a balance on the card and are being charged interest anything that's going to allow you to spend even more on the card and potentially get even more in debt is dangerous.  And as you haven't paid everything off from the last statement it means that interest will accrue on new "purchases" from the first day rather than giving you the 47 (or whatever) days interest free. 

Nope - don't like it.

p00hsticks

 rlm1234 said:

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). 

i don't follow this bit about the £200 monthly payment, unless you are suggesting that you have a significant outstanding credit card balance at the start of the experiment that you are making £200 (minimum ?) payments towards. . If this is the case, then unless you are in a 0% interest offer period, you'll still be left with a balance at the end of the payment period and so will be paying interest on all your purchases, and are no longer making any inroads into that initial debt  .

born_again

rlm1234 said:

• I've watched a few videos on velocity banking on YouTube and I definitely think this is something worth trying.  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.  Any thoughts?

So where does this £200 come from?

Or is this just simply paying the credit card in full each month, rather than the minimum amount?

https://forums.moneysavingexpert.com/discussion/comment/80520010#Comment_80520010

Remember you can not put a Credit Card in a credit balance (against T/C) such as above thread.

rlm1234

Hi, I would like to say that this strategy is suitable for people who have existing balances on one or more credit cards and who want to get rid of those balances as quickly as possible, rather than having to pay installments over several years.  In the example above, by paying £1000 on to the card (obviously you would pay the money in at the same time when the payment is due, you wouldn't make 2 payments, just one), so you are adding £200 back into your cash flow in your bank account.  Actually, your total expenses would go down to £800, as the £200 has been taken care of, so really that is all you would need to pay in.  But obviously you might want to pay the cc off faster in which case, your cashflow has improved by £400, which you could put towards something else.  This is a different way of thinking about budgeting and the opposite of what we've always been taught, so you need to kind of open your mind somewhat.  It's really difficult to explain it this way! and I'm by no means an expert, I would urge you to YouTube it, Vanntastic Finance is a good one.  

rlm1234

Just to say, most videos are from the US so the terminology is different, but the principle is the same.  And it's basically an idea, no one is trying to sell you anything, as far as I can tell anyway 

born_again

rlm1234 said:

Hi, I would like to say that this strategy is suitable for people who have existing balances on one or more credit cards and who want to get rid of those balances as quickly as possible, rather than having to pay installments over several years.  In the example above, by paying £1000 on to the card (obviously you would pay the money in at the same time when the payment is due, you wouldn't make 2 payments, just one), so you are adding £200 back into your cash flow in your bank account.  Actually, your total expenses would go down to £800, as the £200 has been taken care of, so really that is all you would need to pay in.  But obviously you might want to pay the cc off faster in which case, your cashflow has improved by £400, which you could put towards something else.  This is a different way of thinking about budgeting and the opposite of what we've always been taught, so you need to kind of open your mind somewhat.  It's really difficult to explain it this way! and I'm by no means an expert, I would urge you to YouTube it, Vanntastic Finance is a good one.  

So you spend £1K, pay £1k = just paying off what you spent.
You are also missing that when carrying a balance, you are paying interest on ALL payments till the card is fully cleared & any trailing balance interest in the next couple of months.

So again. Where does the £200 come from? 

Simple logic is the more you pay off a debt the quicker you pay it off. Stick to min payments & you can be paying forever if you keep spending.

Sumof999

ok here is how I understand (and apply it)
 say I have 3 credit cards each carrying a balance and I'm trying to clear all of them.  Each card is carrying interest and each card requires a £200 minimum payment each month.  If I use one of the cards to pay a bill or make planned purchases say for example £200 of fuel for the month.  So I use the credit card to purchase fuel for £200 I then pay £200 onto the card to cover the cost of the fuel and that £200 satisfies the monthly minimum payment. I now have £200 extra cashflow that   I can then focus on paying the other debts and then come back to clear that one.  That's how I'm using it at the moment.

EssexHebridean

This is a dangerous game on so many levels it’s untrue. For someone who is in debt, using one credit card to “free up cashflow” in order to pay off debts elsewhere is just not a good idea. 

For anyone arriving here in debt, seeing this thread and thinking “that’s a good idea” - it’s not. Please see the “stickied” post at the top of the board for the process you need to follow in order to start clearing your debts. 

Martico

I can't see a way that your credit card debt wouldn't escalate unless you were also able to cover the interest payments that would accrue. It sounds like robbing Peter to pay Paul while ignoring the fact that interest payments will be accruing daily. Maybe I'm not understanding.