How to Pay Off Your Maxed Out Credit Cards with ZERO Cashflow!!!| @JustJWoodfin

Summary

This 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

00:00

💳 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.

05:00

📈 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.

Keywords

💡Debt

Debt refers to the money that is owed or due to be paid back. In the video's context, it is the insurmountable credit card debt that the viewer is struggling with. The script discusses strategies for paying down this debt, emphasizing the importance of managing finances to overcome the burden of debt.

💡Minimum Monthly Payments

Minimum monthly payments are the smallest amount that a borrower is required to pay each month towards their debt. The script mentions that those with maxed-out credit cards often only make these payments, which can lead to a 'revolving hamster wheel' of debt accumulation.

💡Velocity Banking

Velocity banking is a financial strategy that aims to increase the velocity of money, or how quickly it circulates through the economy. The script introduces this concept as a method to manage and reduce credit card debt through disciplined financial practices.

💡Discipline

Discipline in the context of the video means the self-control and consistency required to follow a strict financial plan. It is highlighted as a key factor in successfully implementing the debt repayment strategy discussed in the script.

💡Credit Card Balance

The credit card balance is the total amount of money owed on a credit card. The script uses a $10,000 credit card balance as an example to illustrate the debt repayment process.

💡Statement Date

The statement date is the date on which a credit card issuer generates a billing statement for the cardholder. The script advises paying off as much of the balance as possible by the statement date to improve credit scores and reduce the reported balance to credit bureaus.

💡Utilization Rate

Utilization rate is the percentage of available credit that is being used by a borrower. The script explains that reducing this rate by paying down the credit card balance can have a positive impact on one's credit score.

💡Interest Rate

The interest rate is the percentage of the borrowed amount that a lender charges for the use of their money. The video script mentions a 30% interest rate on the credit card as an example, highlighting the importance of paying off debt to avoid accruing high interest charges.

💡Cash Flow

Cash flow refers to the net amount of cash moving into and out of a business or individual's accounts. In the script, achieving positive cash flow is part of the strategy to manage and eliminate debt.

💡Balance Transfer Credit Card

A balance transfer credit card is a type of credit card that allows you to move high-interest credit card debt to a card with a lower interest rate, often 0% for a promotional period. The script suggests using such a card as a strategy to further reduce debt after significant progress has been made.

💡Savings Account

A savings account is a deposit account that allows the account holder to save money while earning interest. The script metaphorically refers to the credit card balance as a 'savings account' once a cash cushion is created, indicating the ability to use the credit limit for emergencies.

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