Is Velocity Banking Strategy a SCAM? Expert proves it doesn't work.

Velocity Banking Strategy is often a scam. It's supposedly a way to pay off your debt faster - maybe your mortgage - by doing debt consolidation and debt snowball using a revolving credit line like a Home Equity Line of Credit (HELOC) or a credit card. However, in many cases, the Velocity Banking strategy doesn't work. This video is velocity banking explained: I explain and demonstrate why using velocity banking could take longer to pay off your debt and cost you more in interest expenses. Velocity banking almost certainly will not work to pay down debt faster when you are using a higher interest rate revolving loan to pay down a lower interest rate term loan. It might work if you can use a lower interest rate revolving loan to pay down higher interest rate term loan. However, it is less common for someone who is burdened by a high rate term loan to be able to get a lower rate revolving loan.... which is why I make the general statement that Velocity Banking Doesn't Work. This is an important topic in personal finance. Watch the video to see the actual math for several scenarios. People interested in the debt snowball method and the debt avalanche method will find this useful, too. Check out some of the videos from Vanntastic finance, Velocity Channel, Suze Ormon and Dave Ramsey for other opinions on the topic. Some agree with me, some don't. I showed my math in full detail.

Your host in this video has been the CFO of several software companies and offers a lifetime of business experience to his audience. Will has an undergraduate degree in Economics, an MBA in finance from Cornell University, earned the CFA charter (Chartered Financial Analyst), and has worked as an equity research analyst at top Wall Street firms in addition to his experience running entrepreneurial companies.

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[dianesullivan]

We have a financial crisis, caused by greedy, reckless financial institutions. Congress passes legislation requiring those institutions to be less greedy and reckless. The institutions then lobby to have those restrictions removed, usually in the name of “remaining competitive”. This leads to another financial crisis. It’s completely predictable, and we have been doing this dance since the Great Depression almost 100 years ago.

[remi]

He is also not mentioning the cash flow from eliminating the debts. So the $644, $100 and $284 a month they had in payments to these 3 debts actually gets moved to their cashflow. That money, moving to a revolving account, can be used again if an emergency arises, instead of just being thrown at the debt and that’s it, you can’t use it anymore.

[_Delta]

I ran my numbers in a couple of spreadsheet as well. I could see that with velocity banking (HELOC) I'd be able to pay down my remaining mortgage balance early, but not earlier than by making extra payments. My takeaway was that using the HELOC only provided the flexibility of having access to extra cash for an unbudgeted expense - at the cost of less money going toward the mortgage. The same is the case with making extra payments, but an unexpected expense would either have to be covered by credit, tapping into an emergency fund or reducing future additional principal payments until said expense is covered. Either way, velocity banking turned out to be a moderately higher interest version of what I can already do without a HELOC.

[therealtred]

I used this to pay down my debt super fast. It is in no way a scam; however, for people who have a spending problem and cannot control their spending and live on a budget, this could be bad.

[cristinafierro]

VB worked for me. Maybe you should say that it may not work for every scenario.

[masopha]

Velocity Banking actually is not just using a higher debt weapon to pay down your debts. The part that you forget to mention which is the greatest piece of Velocity Banking is that you create more cash flow than your original cash flow and this is where the magic is at. The second benefit would be that you would have money available to you if something comes up because if you put all your cash flow into a mortgage you will not be able to use that money again. Thank you for showing how Velocity Banking works

[dannyg]

I'm always willing to listen to both sides of the house on any subject, credentials don't mean shit anymore, your exactly correct math don't lie! I think your case would have been better made if you did a react video to one of the VB influencer's videos, breaking down their example and why it would not work. Your case here was kind of weak and difficult to follow along. This is just my observation and reading through most of the comments.

[husainkhan]

In your example where you consolidated all the balances into a credit card, you still subtracted only $1028 monthly. What happened to the extra money leftover from not making the monthly payments from the truck, credit cards that are now paid off? Did you assume it was spent elsewhere?

[HerSoulVacation]

It's all about the difference between "amortized interest and simple interest" which I don't think you explained here.

[HollyMusic]

Wrong you don't take out money with cash advance. You put money into a credit card before one of your bills are due like electric bill propane bill etc. Once that money clears that you have put into your credit card then you pay your electric bill propane bill etc. It satisfies your monthly payment and freeze up that payment to put towards another that you're trying to pay down.

[altyrrell]

Thank you for this video. It makes more sense than the other videos recommended to me.

[kikirodriguez]

My issue with the first scenario is that I haven’t seen (personally) anybody saying to use high interest credit cards for velocity banking. I see people doing balance transfers to zero credit CC’s for anywhere from 12-18 months. I get these offers in the mail constantly: 4% balance transfer and then zero interest for 15 months, just got an offer yesterday in the mail. I could see that working for any high interest balances.

[The_vincepryor]

I did not watch this because using a cc to rearrange you debt IS faulty. However a secured line of credit IS the way to go.

3% percent interest (only) works for me. Before i had $1500 of minimum cc payments.

Using the line credit to pay the 30k of cc debt freed up $1500. Meaning that rearrangement added $600 to my bottom line monthly.

Instead of being in YEARS of debt i am only in a few months of debt.

The Key is creating a BUDGET and sticking with it. It will be hard for about 6 months. That beats years of struggle.

[ABCD-sipx]

But Heloc’s DON’T have a higher interest rate the a mortgage! Read your disclosures and amortization charts! You are paying a massive amount of interest and will often pay twice what you borrowed.

[JordanService]

"Just deposit your extra money into the mortgage" -- is exactly why you don't get the VB idea. It's not about saving money but having more cash-flow at a marginal cost. I could see it being very useful for people. Not having cash-flow can be horrible and expensive... For example, the gas is out because you miss a 35 dollar payment, the Gas Co. can't come and turn it on for a week.... and then they charge you 100 reconnect fee.

No cash-flow cost money and destroys your quality of life. With the VB method, a few months in you can have more breathing room. And maybe get there faster?
(I haven't tried it though, but that seems to be the draw.)

[mjua]

No one ive seen in velocity banking is talking about using a 21% interes credit card. Theyre talking about using a heloc and peloc at 9% interest. Additionally if you can payoff your loans in 13 months with no cashflow velocity banking isnt for you.

[ChavezDIY]

I accept your apology for bursting my bubble in thinking that velocity would work, Haha! You're right, mathematically it doesn't work out. After seeing all the positive comments towards velocity banking in other people's videos, it seems the benefit of velocity banking is the "positive emotions" derived from thinking that you're actually beating the system. I guess that's better than feeling miserable, right. Thanks for your video!

[JoshJorg]

The one scenario I think it can work is if you have a maxed put credit card like I did.

I can lower my daily balance by paying it down with a good portion of my paycheck each week. That will save interest. Then pay my bills with the card and earn 5% cash back which will offset more interest. And make sure to pay more down than I use it every month and try yo pay my bills towards the end of the month.

I should be able to offset interest two ways this way and pay it down with left over cash each month.

[itsatrap]

I'm not trying to be for or against either argument but you didn't take into account some money. You just reallocated the money used for the loans and not their total money allocated to loans + rest of their income. So it isn't an apples to apples comparison to see if you would of saved money if you ignore their other money.

[AlexStyers]

The Velocity Banking process w/ a HELOC can actually work, provided that the HELOC has a lower rate than the mortgage. You're assuming in this video that the HELOC has no limit, and that the interest rate is higher than the mortgage itself. Something also to take into consideration is that the HELOC compounds daily, while the mortgage compounds monthly. Additionally, when you withdraw from the HELOC, you generally have a minimum amount you can take out (in my case, that is $5000 with the particular CU that I use).  Also depends on the type of HELOC you get. (Mine's a 5/10 at a fixed rate 2 points lower than my mortgage(s)). So, in this case, Velocity banking mathematically works if you are dumping a mortgage onto the HELOC in chunks, or as a whole.

Thanks for sharing this video though! Very helpful to see different sides. **Everyone's situation is different.