How Velocity Banking Works
A step-by-step guide to eliminating debt faster using your existing cash flow
The Core Concept
Velocity banking uses a revolving line of credit (typically a HELOC) to make large "chunk" payments against high-interest debt, then uses your monthly cash flow to rapidly pay down the line of credit. This cycle repeats until you're completely debt-free.
The 5-Step Process
Open a HELOC
Secure a Home Equity Line of Credit using your home's equity. HELOCs typically have much lower interest rates (7-9%) compared to credit cards (18-25%) or personal loans (10-15%).
What You Need:
- • 15-20% equity in your home
- • Credit score of 620+ (higher = better rates)
- • Stable income documentation
- • Debt-to-income ratio under 43%
Make a "Chunk" Payment
Take a lump sum from your HELOC and apply it directly to your highest-interest debt's principal balance. This is called a "chunk."
Example:
You have $20,000 in credit card debt at 22% APR. Take a $10,000 chunk from your HELOC and pay off half the credit card immediately. Now you have $10,000 on the HELOC at 8% instead of $20,000 at 22%.
Deposit All Income into HELOC
Direct your entire paycheck into the HELOC. This immediately reduces your balance, which means less interest charged. HELOCs use simple daily interest, so every dollar deposited saves you money.
Why This Works:
If you deposit $6,000 on day 1 of the month, your $10,000 HELOC balance drops to $4,000. You're charged interest on ~$4,000 average balance, not $10,000. That's 60% less interest!
Pay Expenses from HELOC
Use your HELOC like a checking account for monthly expenses. Your income reduced the balance early in the month, so even as you pay bills, you've already saved on interest.
Month Example:
- • Day 1: Deposit $6,000 income → Balance: $4,000
- • Day 5: Pay $1,500 mortgage → Balance: $5,500
- • Day 10: Pay $500 utilities → Balance: $6,000
- • Day 15: Pay $1,500 food/gas → Balance: $7,500
- • Day 30: Pay $500 misc → Balance: $8,000
- • Net reduction: $2,000 (your cash flow)
Repeat the Cycle
After several months, your HELOC balance will be low (or zero). Take another chunk and apply it to your next debt. Keep cycling until all debts—including your mortgage—are eliminated.
The Cycle:
Why Velocity Banking Works
Lower Interest Rates
Replace 18-25% credit card debt with 7-9% HELOC debt. Immediate savings.
Simple Interest
HELOCs charge simple interest on daily balance. Income deposits reduce interest immediately.
Principal Reduction
Large chunks eliminate principal fast. Less principal = less interest over time.
Do You Qualify?
You're a Good Fit If:
- You own a home with 15%+ equity
- You have positive monthly cash flow ($500+)
- You have stable, predictable income
- You're financially disciplined
- You have debt at higher rates than HELOC
Velocity Banking May Not Be Right If:
- ×You don't own a home or have no equity
- ×Your expenses exceed your income
- ×Your income is highly variable/unstable
- ×You struggle with overspending
- ×Your only debt is low-interest (under 5%)
See Your Personalized Results
Use our free calculator to see exactly how velocity banking would work with your specific debts, income, and expenses.
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