How to Pay Off Your Maxed Out Credit Cards with ZERO Cashflow!!!| @JustJWoodfin
Summary
TLDRThis video script introduces a disciplined approach to tackling credit card debt through a method akin to 'velocity banking.' It advises individuals with maxed-out credit cards and no extra money to pay down their debts by using all available cash flow after essential expenses. The strategy involves making payments close to the statement date to report a lower balance to credit bureaus, thus improving credit scores and reducing interest charges. The script emphasizes the importance of lifestyle adjustments and strict financial discipline to effectively eliminate debt and build a savings cushion within the credit card balance.
Takeaways
- 😀 The video introduces a debt repayment strategy for individuals with high credit card balances and no extra money to pay down their debt each month.
- 🏦 It suggests a concept called 'velocity banking', which involves using discipline and possibly lifestyle changes to eliminate credit card debt.
- 💰 The strategy requires separating essential non-credit card expenses, such as rent or mortgage, and putting the rest towards credit card payments.
- 📈 The video uses an example of a person with a $4,000 monthly income and expenses, including a $10,000 credit card balance with a high 30% interest rate.
- 🔄 It emphasizes the importance of paying the credit card balance as close to the statement date as possible to report a lower balance to credit bureaus and improve credit score.
- 💳 The method involves using the remaining cash flow after essential payments to pay down the credit card debt, thus reducing the balance and creating a 'savings account' within the credit limit.
- 🚫 The video advises against spending on the credit card for a few days after making a payment to ensure the reduced balance is reported.
- 📉 As the credit card balance decreases, the interest charged also reduces, making it easier to manage the debt over time.
- 🔄 The strategy is to repeat this process monthly, gradually reducing the credit card balance and increasing the cash cushion within the credit limit.
- 🔄 By month 18, the strategy aims to bring the credit card utilization rate below 30%, which is a significant marker for improving credit score and potentially qualifying for a balance transfer card.
- 💼 The video concludes by emphasizing the importance of discipline, adjusting the strategy to personal circumstances, and becoming reliant on the credit card for spending while ignoring cash for daily expenses to avoid overspending.
Q & A
What is the main issue addressed in the video script?
-The video script addresses the issue of managing credit card debt, particularly for those who are maxed out and struggling to make minimum payments.
What concept is introduced in the script to help with credit card debt?
-The script introduces the concept of 'velocity banking' as a method to manage and reduce credit card debt.
What is the significance of paying off the credit card balance before the statement date?
-Paying off the credit card balance before the statement date helps to lower the reported balance to the credit bureaus, which can improve the credit score and reduce the interest rate applied to the balance.
How does the script suggest handling non-credit card expenses like rent or mortgage?
-The script suggests separating non-credit card expenses like rent or mortgage and placing them in a different account to ensure they are paid on time and not mixed with credit card debt.
What is the proposed starting point for managing credit card debt in the script?
-The starting point is to transfer any remaining cash flow, after paying for non-credit card expenses, to the credit card to reduce the balance and monthly payment obligation.
How does the script propose to deal with the interest rate on the credit card?
-The script acknowledges the interest rate but suggests that by reducing the balance each month, the interest calculated will decrease, and additional income can be generated to cover the interest payments.
What is the role of discipline in the velocity banking method described?
-Discipline is crucial in the velocity banking method as it requires consistently transferring available funds to the credit card, avoiding unnecessary spending, and making timely payments.
How does the script suggest using the credit card to create a 'savings account'?
-By consistently paying down the balance and only using the credit card for expenses, a 'savings account' is effectively created within the credit card limit that can be used for emergencies or other needs.
What is the importance of maintaining a low credit utilization rate?
-Maintaining a low credit utilization rate is important because it shows credit bureaus that the individual is managing their credit responsibly, which can lead to a better credit score.
How does the script recommend finding additional funds to pay off the credit card debt faster?
-The script suggests finding additional income sources such as gig economy jobs (e.g., Instacart, Uber Eats, Uber Lift) or odd jobs to cover the interest payments and accelerate debt repayment.
What is the final outcome of following the velocity banking method as described in the script?
-The final outcome is the elimination of the credit card debt and the establishment of a disciplined financial habit that can lead to better credit management and potentially saving money.
Outlines
💳 Managing Credit Card Debt with Velocity Banking
The video script introduces a method to manage and reduce credit card debt by utilizing a strategy known as velocity banking. The speaker acknowledges that typical advice revolves around those with manageable debt, but this method is aimed at those who are maxed out on their credit cards and struggle with minimum payments. The concept involves using discipline and lifestyle changes to allocate all available funds towards paying down the credit card balance. The example provided involves a person with a $4,000 monthly income and expenses, a $10,000 credit card balance with a 30% interest rate, and a $400 minimum monthly payment. The strategy emphasizes paying off as much of the balance as possible before the statement date to reduce the reported balance to credit bureaus, thereby improving the credit score and reducing the debt over time.
📈 Progressive Reduction of Debt and Utilization Rate
This paragraph continues the discussion on debt management by detailing the step-by-step process of reducing the credit card balance over a period of time. The speaker outlines a plan where, after paying essential non-credit card expenses like rent, all remaining funds are used to pay down the credit card balance before the statement date. This action not only lowers the balance but also decreases the credit utilization rate, which is beneficial for the credit score. As the balance decreases, so does the interest charged, making it easier to manage over time. The script also addresses the psychological aspect of having no cash flow and suggests maintaining discipline to avoid lifestyle expenses that could derail the debt reduction process. By the 18th month, the strategy has significantly reduced the credit card balance and utilization rate, prompting the consideration of a balance transfer credit card to further accelerate debt elimination.
Mindmap
Keywords
💡Debt
💡Minimum Monthly Payments
💡Velocity Banking
💡Discipline
💡Credit Card Balance
💡Statement Date
💡Utilization Rate
💡Interest Rate
💡Cash Flow
💡Balance Transfer Credit Card
💡Savings Account
Highlights
Introduction of a concept to manage credit card debt for those who are maxed out and struggling with minimum payments.
The presentation of 'velocity banking' as a method to tackle insurmountable credit card debt.
The necessity of discipline and potential lifestyle changes for effectively managing and eliminating credit card debt.
A step-by-step guide on how to allocate monthly income towards debt repayment, starting with non-credit card expenses.
The strategy of using the remaining cash flow to pay down credit card debt and the importance of timing these payments.
The impact of paying off a portion of the credit card balance on reducing the monthly interest charge.
How the interest rate calculation changes as the balance decreases, leading to a reduced interest payment over time.
The importance of maintaining discipline in monthly expenses to ensure a consistent decrease in the credit card balance.
The emergence of a cash cushion within the credit card balance as debt is reduced, providing a safety net for unexpected expenses.
The suggestion to use a balance transfer credit card with a 0% interest rate to further accelerate debt repayment.
The potential for increased financial stability and the ability to save money once the credit card debt is eliminated.
The emphasis on the importance of becoming reliant on the credit card for spending to build a positive credit history.
A reminder that the presented method is not absolute and should be adapted to individual financial circumstances.
The idea of keeping a portion of income as cash on hand for those who cannot operate without cash in the bank.
The conclusion that discipline and a clear understanding of financial operations are key to successfully managing debt.
A call to action for viewers to subscribe and engage with the content for more financial insights and strategies.
The acknowledgment of the inspiration from another YouTube channel and the intent to clarify and improve upon their presentation.
Transcripts
so if you're about to start missing
payments or having late payments because
you feel like the insurmountable debt
that you owe to the credit card company
can't possibly be paid watch this
video so it dawned on me a few days ago
that I've pretty much taught you guys
everything I possibly can about how to
pay your credit card bills the right way
but those videos for me and people like
me in this space typically revolve
around people who don't have much debt
on those credit cards so what about
those of you who are maxed out on your
credit cards and have no extra money
each month to start paying those down
you're pretty much on a revolving
hamster rule of making the minimum
monthly payments watching that Bal
Skyrocket each month well don't worry as
usual I got you come on so I want to
introduce a concept to you guys that's
not new matter of fact it's fairly old
but most of us aren't talking about this
because it's not popular now I'm sure
most of you have heard about a concept
called velocity banking the method that
I'm going to show you guys today is
pretty much a representation of that
concept now in order to pull this off
it's going to take an immense amount of
discipline and possibly some lifestyle
changes but if you can tighten
everything up for a couple years you can
pretty much get rid of any debt that you
have with credit cards let's go now what
we're going to do is use a
representation of a person who makes
$4,000 a month but has expens is of
exactly $4,000 a month which leaves them
with $0 cash flow when everything is
paid off now to make it realistic we're
going to include a rent SL morgage
depending on which one you had so I can
tell you exactly how to split everything
up in order to get this right now the
credit card in question is going to have
a $10,000 balance which will come with a
$400 monthly payment because typically
it's going to be about 4% of the balance
that you owe on a minimum monthly
payment on any credit card now I'm going
to make this a really shitty credit card
with a 30% interest rate just to kind of
really drive the point home that it can
be done pretty much on any card now I'm
not going to add the interest rate into
the monthly payment as we move move
through this model because I want to
keep the numbers simple and round but at
the end of this video I'll let you know
exactly what I think about that 30%
interest rate and how to deal with that
moving forward so the person we're going
to be discussing is going to have $4,000
left after everything's been taken out
of their check the money's been
deposited in their bank account and they
can spend it now the very first thing
we're going to do is we're going to take
out all money that cannot be spent on a
credit card I.E rent mortgage sometimes
even a car note so if you can't spend it
on a credit card we're going to separate
that money and put it in a different
account now our rent payment in this
model is going to be $2,000 a month
which leaves us with $2,000 to maneuver
with throughout the month paying bills
getting gas food Etc now once we factor
in all those expenses after the rent has
been taken care of like I said we're
going to have $2,000 left which will
leave us with $0 of cash flow after
everything has been paid throughout the
month and just so we can keep an eye on
where we came from we're going to put
the credit card information down here at
the bottom so let's get started with
month number one where we have a flat
$10,000 balance on a maxed out $10,000
credit line the very first thing you're
going to do is take every single dime
you have left in the bank account after
the rent or the mortgage has been paid
and put it into that credit card and yes
I said every single dime because at the
beginning of this video I told you flat
out anything that can't be paid by a
credit card separate it and put it in a
different account so whatever is left
over belongs to that credit card this
will take our balance down to
$8,000 now what I want you to pay
attention to is when we pay that $2,000
into this credit card go back to some of
my videos that I made about paying
everything down by the statement date
because what you want to do is make sure
that when you pay this down this number
reports to the credit bureaus you don't
want to want to wait until you run it
back up by paying all your bills
throughout the month so pay this $2,000
to this credit card as close to the
statement date as possible and try not
to spend any money on it for a few days
this will do a couple of things not only
will it help you start paying down this
credit card faster over time helping
your score Skyrocket quickly now
throughout the month we're going to
realize about $600 in expenses and bills
this can't be avoided these are things
that can't change so we know for fact
that we're going to be charging this
amount of money to this car throughout
the month now I know you're probably a
little confused you're probably thinking
Jay in the beginning you told us we had
$2,000 of expenses well that's true but
what you're not taking into account is
that once you move this money over to
this credit card over here this is
actually going to satisfy this $400
monthly payment thus eliminating this as
a bill altogether this will create $400
cash flow where there was Zero before so
each month that you continue to do this
you'll realize a $400 drop in the
overall balance if you can stay
disciplined which will bring us down to
9,600 bucks at the end of the month now
once again I told you that we're not
going to talk about interest rate but
let's go ahead and put that into
perspective here for a second the
interest rate rate on a $10,000 credit
card at 30% is about $241 a month now
the reason why I'm not going to make a
big deal out of that $241 a month that
they're going to tack onto this $110,000
balance is because you can pretty much
earn $240 a month doing anything
instacart Uber Eats Uber lift anything
posting yourself on Craigslist to do a
couple of odd jobs for people you can
make that $240 up so if that's going to
be your main excuse for not being able
to get this done it wasn't going to work
for you anyway now an important part I
forgot to mention right there about how
the interest rate is calculated is that
every month you pay this balance down
more and more that interest rate shrinks
more and more just in case you didn't
know how the interest rate was
calculated they take the statement
ending balance and times that by the
interest rate in this case 30% they then
take that large number and divide it by
365 days interest rate is calculated on
the average daily balance so every month
that that balance is shrunk they have
less and less to calculate that 30% by
so let's move on to month two so as you
can see in month two our starting
balance is only $9,600 we're going to do
the same exact thing as we did the
previous month right we're going to move
our rent or mortgage payment over to a
different account as well as anything
else that can't be paid by our credit
card and then we're going to move all of
the rest of the money from our bank
account back over to this credit card
we're going to do this right before the
statement date so that the $7,600
balance that we see here gets reported
to the credit bureaus once again
dropping our utilization rate down
further now because we've satisfied this
$400 monthly payment for this credit
card we only have $1,600 in expenses
once again after we've gone through our
month of $1,600 expenses whether it's
bills food gas whatever it may be our
ending balance for the month is going to
be
$9,200 now we're already down $800 after
two months on this credit card we
haven't earned any additional money yet
and we're still making a dent in this
big balance if you do this month after
month after month after month you guys
will continue to see this balance drop
and month number six we're already down
to $7,600 now at this point in our
journey we're starting to realize that
we have a little bit of a cash cushion
within this credit card balance like I
told you before this was a $10,000 limit
and it was maxed out at $10,000 but once
you get down to the point where you have
about a $3,000 cushion this is where
Life Starts to go Haywire tell me I'm
lying anything will happen within your
life a flat tire transmission goes out
your mama needs a couple of bucks your
kid has a class trip or a prom or
anything that will take a chunk of money
out of your pockets now a lot of people
get scared because they keep saying Jay
I'm putting all of my money from my bank
account into this credit card I have no
cash left over well that's not true
because essentially by having the
discipline to pay this down this way
you're creating a savings account within
this credit card balance that you can
use at any time your daughter needs a
prom dress put it on the credit card you
need those new tires put it on the
credit card your mama needs money for
groceries take or shopping on the credit
card transmission credit card Emergency
Family bereavement trip put it on the
credit card there's not a lot that you
can't do in this day and age that can't
go on a credit card and that's the
reason why we satisfy the rent or the
mortgage payment upfront is so that we
take care of those expenses that can't
be solved on the credit card right away
we're going to go to a model where we
can see how things kind of break down
month over month over month over month
and after month 19 now before we get
into month 19 I want to go back to month
18 because this is an important marker
in this journey when you look at month
18 you've now officially drop just below
that 30% utilization rate for this
particular credit card now if this is
the only credit card that you're dealing
with like this and the rest of your
credit file is pretty clean at this
point in time I would start hunting for
a balanced transfer credit card because
once you get a good balanced transfer
credit card with a 0% interest rate on a
balance transfer now you can move the
rest of that $2,800 debt over to that
card and continue paying it without the
interest rate penalty this makes the J
to go by a lot faster and a lot easier
what I'm trying to get you to understand
is that there's a lot of nuance when
you're paying attention to your finances
and you learn how to operate the proper
way now if you're like most and having
absolutely no cash in the bank is an
untenable situation please feel free to
take $300 $500 or even save $100 out of
every check and keep that as cash on
hand this is not a 100% absolute you
have to do it this exact way in order
for it to work the math still maths over
time I'm just using an extreme example
so you can see how it can go at its
maximum efficiency so like the late
great Kevin Samuels always said eat the
meat and spit out the bones man don't
come at me in the comments talking about
how nobody can operate with no cash in a
bank account do what you will make it
work for you and before we get back into
the video I want to explain to you
probably the most important thing about
learning how to operate the credit card
this way and that's becoming solely
reliant on the credit card for spending
and completely ignoring the cash in your
bank account for spending on daily
expenditures this becomes a great habit
because it allows you to continue to
build your relationship with the credit
card company while not exposing yourself
because you're spending cash and credit
at the same time this is where the day
Zone occurs cuz let's face it it's just
a matter of time before you spend too
much here out of your bank account spend
too much here on the credit card and you
don't have enough here to pay here now
you found yourself back in this
situation all over again let's get back
to the video we're down to $2,200 and at
month 24 we've pretty much eliminated
this entire debt now we're into the
saving money mode and if you continue to
be disciplined like most normal human
beings as you continue to work and
progress through your job you're
probably going to make more money which
will put you in a much better financial
situation moving forward now what
triggered me to make this video the way
I just made it was actually seeing this
video on a YouTube channel called
fantastic now I like the way that she
broke it down but the math that she
presented it with was a little flaw so I
wanted to remake it for you guys in my
delivery in my own way like if you
appreciate and like content like this
please feel free to subscribe like the
video and turn on your notifications so
you get notifications of anytime I drop
a new video now you know I got to let
you guys know I appreciate you because
you can go anywhere on the internet for
your credit information but you're here
with me be
[Music]
blessed
[Music]
n
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