Velocity Banking uses a line of credit to pay off your ammortized mortgage or student loan. The concept includes borrowing money at simple interest to pay for a loan that charges amortized interest, thus saving you huge amounts of money on your loan. To get a good credit card or get a home equity line of credit, you need a good credit report.
What if you don’t have credit? You can still follow the velocity banking method to pay your loans down using your checking and savings account in the same way you would use a line of credit with a checking account. The savings account will be your line of credit. Borrow a chunk of money from your savings and pay it towards principle on your loan, then spend the next “x” number of months putting all of your positive cashflow into your savings account until you reach the original savings balance. Then repeat. This method will actually save you more money than borrowing money from a credit card or HELOC, but it requires more saving upfront.
For example, lets say Cindy has $3000 in her checking account and $12,000 in her savings account. She can take about half of her savings account, $6000, and apply it towards the principle (principle only) of her loan. If she saves $500 per month, it will take her 1 year to get her savings account back to $12,000. After at point, Cindy will put another $6,000 towards her loan. She will repeat this process annually until the loan is paid off. Everyone’s income, cash flow, and situation is different. Some of you may have the ability to put $3000 every 3 months, while it could take every 6 months or 15 months. Either way, it will save you thousands in interest when applied to your mortgage or student loan.
If possible, try to keep 6 months of emergency savings and don’t use it for anything except emergencies.
