$289k Debt Velocity Banking With A 1st Position HELOC

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Hello and welcome Kingdom citizens, subscribers and new people. My name is Denzel Rodriguez, your personal finance geek of the 21st century. On this channel we cover the velocity banking concept, Infinite banking and Kingdom authority. Today we're going to be discussing in detail a velocity banking real life case study. Going to be looking at a husband and wife and we're going to be looking at the action steps that we're going to take before we actually start velocity banking. So you can see how things come together, how we actually implement this concept. We just don't, we don't just run into it. We position ourselves properly and accordingly, we run the numbers to make sure and verify against debt snowball or debt avalanche to determine whether or not this concept even makes any sense whatsoever. So with that being said, let's dive into the lesson. So here we have a husband and wife together. Combined income 8,000amonth. Total expenses $5,787.46. Total debt 289,700 $740.57. To my right you will see all of the debts listed out accordingly, which leaves us with a leftover net free cash flow of $2842.54. As of right now, I'm recording this video in January 2022. I am working with this couple in January 2022. So that is when we connected. As of right now, they do not have a line of credit. We are projecting that within about a four to six month window we can acquire a debt tool. So while we are preparing ourselves for velocity banking, what should we be doing? Simple debt snowball or debt avalanche? We should be attacking debt with our free cash flow for the time being until we acquire that debt tool. They're averaging a credit score around 650 or lower. So we don't want to go running into a bank and apply and get denied right off the bat. We want to make sure we have a high enough credit score according to the bank that we're looking at. Okay, There are certain banks and credit unions that will approve 650, 670, 680. But still, nonetheless, we want to make sure we have a good rapport, good relationship, the right credit score across all three bureaus. We just want to have all our ducks in a row, that's all. So we're going to take the next four to six months. Action step number one, increase our credit. How do we increase our credit? Paying off debt is one way that's pretty simple and straightforward. But there's other strategic moves that would Require having a consultation or working with a credit repair expert to kind of guide you through the steps. So I encourage this client to reach out to a credit repair expert. And as you guys know, on this channel, for the longtime subscribers, kingdom citizens and clients, we all use Brittney Green. That's who we know like and trust. That's who I know like and trust. At the end of the day, if you know someone in your local area, if you got a friend that is a credit expert or you know another credit guru, credit influencer, reach out to them, see what their prices are, see what you can do to build that credit if you're in that positioning process, like this couple here. Okay, so moving right along, as we're increasing our credit score, we're going to be doing the debt snowball concept, looking at the debts over here. Typically with debt snowball, Dave Ramsey, seven baby steps. Okay. I'm Dave Ramsey, certified as a financial coach. I know what I'm talking about. In regards to that realm, you start with the lowest debt, you work your way up. Debt avalanche says you work with the highest interest debt, work your way down. Either way, you're going to get results. Okay. They're going to be neck and neck pretty close.

Okay.

Not a huge difference like what velocity banking can potentially illustrate and show improve. Okay, so we're going to take the debt snowball approach. Over the next four to six months, just take the cash flow times that by say four months, you're going to get around 11 grand. And so with $11,000, looking at the debts to my right here, I've got a couple different credit cards, 236, 259, owed $472, $1,700, which is at 0%. So we're actually going to ignore that. If you were getting coached by a Dave Ramsey certified master financial coach, they would tell you not to ignore that. They would actually tell you to pay that off, telling you not to pay that off because that's on zero percent. Why would you pay off zero percent debt when you're getting hit with higher interest debt? Okay, so we're going to skip over that and go to the very next card says 2,300 at 32%. That is the highest interest rate I've ever seen on a credit card. And that's a Home Depot card. So for those that are looking to get a Home Depot card, please pay attention to that interest rate. That's wild to me. But then they have another Home depot card at 29%. They owe $2,700. So just by doing debt snowball alone over the next four to six months, they can easily wipe out 1, 2, 3, 4, say four or five debts, right? About five to six debts in about a four to five month window. That's easy math. And I increase my cash flow by the 50, 100 bucks. Hundred bucks, 100 bucks, 100 bucks. So that's $450 in increased cash flow prior to actually even starting velocity banking. Okay, so as I'm doing that, as I'm increasing my credit score, once I have enough confidence, I feel positioned, I found the right debt tool, then I will go and apply and acquire that debt tool, take all the guessing work out of it, have all our ducks in a row. We know all the requirements that the bank wants us to have in order. We know our DTIs got our incomes, everything. For this particular case, looking at their numbers, their cash flows and the type of debt that they have, if you look at the bottom here, they have a mortgage of which they owe $225,000 on mortgage payments, 1638 interest rates 4.25, they actually have a value appraised at roughly $450,000. So they have plenty of equity in their property. Which leads me to encouraging them to acquire a home equity line of credit either in the first or second position. My personal opinion, if I was in their shoes, I would acquire a first position HELOC, removing the entire amortized 4.25% and potentially not guaranteed, but potentially get an even lower rate than 4.25%. Probably a neighborhood between 3 and 4, probably even 2 1/2% depending on the bank and the credit score and what, what product they find out there in the marketplace. I have clients that have obtained home equity line of credits in the first and second position in 2021, as low as 2% flat if I'm not mistaken, and then a neighborhood of three and a half, four. The highest I've seen is like five, five and a half percent. But honestly you can do way better within three to four, I would say you're winning in most cases. So in this particular example here, their mortgage being at 4.25%, you can't argue with that. Even if they got a interest rate higher than 4.25%, say four and a half, 4.75, you would still be making a ton of damage because of the way the interest is calculated. And we're going to get into that in a minute, but nonetheless we're going to shoot for below 4.25.

Right.

Why? Because the lower you go, the better your numbers are going to be regardless.

Right.

So 4% or lower, that's the goal. Let's say they were able to acquire a home equity line of credit in the first position where they give them about 375k. And I think that's in the range of 80 to 90% of the LTV. And they had, they got approved for 3.5%. That could either be fixed or variable.

Right.

If it's variable, then the rate can change either on a monthly basis or an annual basis. Even if it was to increase, if I'm not mistaken, the most that it increase year to years, I think either 1%, maybe more. I might be mistaken, but the reality is in our current economic environment the likelihood of your rate shooting up dramatically, which is what some of the say people who are not in favor of this kind of a concept and they kind of use that as like a warning. The reality of that happening is very unlikely. Based on the last three years that I've been in business working with clients, I have not seen that actually happen. We're at an all time low interest rate environment. And on top of that you're dealing with hyperinflation, you're dealing with your government, our government printing trillions of dollars. So I just don't see that happening. And even if it did, by the time it happened, I'm already out of debt. Okay. So I'm not even in, it's not even a concern.

Right.

So let's just say we have a steady either fixed variable rate of 3.5%. Simple interest credit line 375k and we're going to owe whatever the remaining mortgage balances four or five months from now. So it's going to be less than 225. But I just stuck with the same number.

Right.

Just to overestimate.

Right.

Have room for error. So you'll owe 225 and you would have roughly 150,000 of free space equity in your credit line. Once we know what we get approved for, what our debt tool is now we have to determine what, what our chunk is going to be. Our first chunk. How do we determine that? Take the credit limit, times it by 66%, you're going to get $247,500. I also, because this is a replacing of the mortgage and we're still going to have to make a chunk on top of what we owe. I'll take what's available in equity and I'll Times that by 66% you get 99,000. I also take the person's cash flow per month times 12. I went with the starting cash flow, not what they're actually going to be at.

Right.

Because they're going to be $450 more in cash flow by eliminating through debt snowball. But I'm still going to use this number. Again, just being conservative.

Right.

Because all this is hypothetical. This has not happened yet.

Right.

So cash flow times 12 based on this number, 34 grand. Anywhere between 34,000 and 99,000 would be my first chunk. Now looking at their income, looking at their numbers and getting to know them a little bit, 99,000 is way out of my comfort zone. Way out of their comfort zone. So we don't even need to attempt to go that high. There's no reason to because they don't have that much debt outside of their mortgage. So we don't. So you see that, right? We don't even need to go that high. So I'm going to stick within their cash flow number around like 30, maybe 50k being the highest.

Right.

So that's what I determined. Let me know your thoughts in the comments. First chunk, anywhere between 30 and 50 grand. Okay, so from here we determine, okay, what are we going to tackle, what are we going to pay off? Now that we know how much our chunk range is and we have our comfort level, what are we going to attack? Okay, so looking at the debts here, I would say that if I eliminated through debt snowball alone, I got rid of this debt. 236, 259, 472, 2,300. Let's say we got rid of. Yeah. 1, 2, 3, 4 and definitely this, this will be gone. Yep. The 2779 gone just by adding the 5000 which is a loan. 5,695 at 23%. 202 is the monthly payment. 8071, 64, 27%, 155 monthly payment and then 8003 63087%, 278 and the 10 grand. Add those numbers up. 18, 26. See where we're at.

Not bad.

So we are, let's see 1, 2, 3, 4, 5 debts eliminated.

Yep.

And I'm just going to verify my numbers because that's important. Always want to verify this stuff. Take that cash flow of 28, 42, 54 times that by say a four month window. That was the 11,003, 7016 that I got earlier. And then what I was doing was I just minused 23634 minus 25964 minus 47257 minus 2300 minus 277988. So yep. So I can also with debt snowball, get rid of that 500695 as well. Maybe in the fourth, maybe fifth month. Let's say we got rid of that. So now we're only dealing with these three remaining debts. So I got 807164 plus 800036308 plus 10,806 86. So that's 27,000.

Right.

Then I got another debt up here at the top. This is a tax debt that they owe. They owe some taxes and I wasn't able to get the interest rate from them. They don't even know. It kind of fluctuates. So we're going to try and get an accurate reading on that. But I'm willing to bet it's somewhere in the neighborhood between 5 and 7%, maybe even double digits depending on what type of IRS debt it was. But I've seen based on experience 5 to 7%. And I think in one scenario I might have saw a double digit like 10 or 11. Okay, so that is an IRS debt. So I said anywhere between a 30 to 50k chunk. So we know that just from $27,000 chunk I get the 155 cash flow, the 27891 cash flow and the 314. So I get $747.91 cash flow there. And then if she goes a little higher, she could potentially eliminate roughly 30, 40, maybe 50% of the IRS debt. Now that may reduce the monthly payment. So she might be able to recapture 125 bucks, 150 bucks maybe from that. But let's say she just did a solid 30. Okay say somewhere around 30, 40k chunk. Some of that chunk would get applied there but wouldn't pay it off. So I'm not going to count on that cash flow. But here's what's interesting about when you do a first position home equity line of credit, or really any HELOC for that matter. Most of them are principal and interest payments. With most home equity line of credits in the first position. They're interest only payments, a good amount of them. So let's say I owe 225 and I did a chunk. Let me see what I did here. 260,000 minus 225. Let's say I did a 35k chunk roughly right that's what my numbers show here. When you take that number, 260,000 and add a 3.5% interest rate and divide that by 12, your interest only payment is only going to be 758 bucks. That's what's coming out of their expenses. So the 16, 38, 20. Understand that the difference between what we're getting charged in the HELOC is now going to be sitting in principle at the beginning of each and every month. Unlike your amortized mortgage where you're making the payment at the beginning, or I should say at the end of every new month.

Right.

You make a payment, then they apply principal and interest versus when you're dealing with a home equity line of credit. Principal gets applied first, interest gets applied at the end of the month or at the due date. So you have all that time to be stuffing your income and manipulating what you're actually going to end up paying.

Right.

So we'll have an additional $880 going to the principal on that HELOC, which increases our cash flow. And the cash flow is sitting in the heloc. So that reduces our actual expenses leaving the HELOC and again manipulating the rate. So let's take a look, let's see how that actually plays out. 260,000 times 3.5%. You're going to get a number. Divide that number by 365. Boom. $24.93 a day. That's the highest balance she'll have. Let's say she did that first chunk of 35k income goes in minus 8 brings it down to 252.

Right.

Over a 30 day period. Not all at once. Times that by 3.5%. Look, drops it down to 24 or 16 a day. Expenses go back out. What are my expenses now? They've dropped by nearly 50%. If you do the math and you eliminate all those payments, all those debts that we got rid of, plus factoring in the difference in this 1638, her actual money leaving the HELOC, okay, is going, is going to be $2877.68 versus her original expenses being at $5700. So her cash flow nearly doubles.

Right.

So when you're looking for your average daily cost of borrowing, you take those three numbers in that month, these are going to be the three different balances that you'll potentially see. You got your highest balance, you got your lowest balance after income going in. Then you have your next second highest balance, expenses coming out. Add the three, divide by three you get $24.51 per day is what I'll be getting charged. Times that by 30 days, you're at roughly $735.30. Notice how we manipulated the rate from 758 to 735. Okay, now to manipulate that rate even further, you attach a credit card into your strategy with Cashback Rewards, let's say out of her expenses, we're able to run roughly $2,000 worth of bills through a credit card, which she just paid off all her credit card debt, so she has plenty of space. Now you see that? Let's say she gets 2% cash back rewards. 2000 times 2% is 40 bucks. 40 minus from the 735. 30. Look, we're at 695, 30 in the first month interest on the HELOC alone, we shifted in our first chunk 27%, 7%, 13%, 4.25%, all the way down to 3.5%. That right there, just that alone, what is that called, ladies and gentlemen? Debt consolidation. Everybody knows that term, that alone allows me to go faster than you making extra payments. That alone puts me ahead of you. I'll beat you. If I do nothing else but just continue to make extra payments on this lower credit line, lower interest rate, I will beat you. Compared to you just doing snowball, I will beat you. Now, to leave you in the dust, I now add the velocity of money where I'm going to use all of my income to manipulate what I actually pay in interest. I am canceling interest, manipulating the rate, lowering it, offsetting the interest. That 1638, 20 alone at 4.25%. If you ran the math, 30 year mortgage, pretty sure more than 50% of that 1638 is going towards interest, which is higher than my number here. So just by consolidating, I offset what I'm paying here, right? So this695, you were going to pay that already in these debts alone. So all I did was moved it into a lower rate environment and then I offset it by allowing my income to sit in the debt, pushing the interest down even lower on a daily basis, swiping my credit card to leave the money in the HELOC for as long as possible. And then when the credit card is due, I make a transfer from the heloc, pays a credit card off in full, rinse, repeat. So that means that the following month I'm going to pay less than 695 in interest. That number is going to go down month to month. My, my interest on the HELOC is going to continuously decrease, decrease, decrease. Okay, so now the goal, after you brought the balance all the way up to 260, we want to get it below 66%, 247. Because by then you'll have enough space to remove the last debt outside of the HELOC debt itself, which is the taxes. We'll get that 323 and we'll reroute that interest to the HELOC. I am almost certain that what the IRS is charging them is higher than this 3.5% rate. It's probably double what they're paying over there. And if I'm not mistaken, it's amortized.

Right?

So that's the last remaining debt outside of the HELOC itself. So my second chunk will pay off the last debt outside of my heloc. And at that point, I'm just doing velocity banking on my debt tool, right? Day in and day out. And we with the first position heloc, you simplify the, the whole entire process, which is another reason why I was encouraging them to look at a first position heloc, because, number one, you no longer need a separate checking account. You'll get a debit card. You can write checks, easy transfers in and out. You can set up your direct deposit so your income to go directly into the HELOC the day you get paid. So that removes a step of velocity banking, me not having to manually move my income from my checking to my debt tool. You just eliminated one step right there. And if you get paid twice a month, you just eliminated two steps, right? Then you eliminate another step in terms of auto pay. So the bills that cannot be paid with a credit card, like those other debts that they had on the, on the board here, as well as, let's see, what's like a water bill or something like that, something that cannot be paid with a credit card. You can set up auto pay right through the heloc. So you just eliminated another step there. And then when you attach the credit card, you eliminate 5, 7, 9, 10 steps where you don't have to on a daily basis, move money out of the HELOC to pay your food, your gas, house supplies, bathroom supplies, subscriptions. You can have all that autopay set up on the credit card. Your subscriptions, your car insurance, cable, maybe electricity, right? You set all that up on the credit card autopay. Then you can have the credit card itself on autopay from your HELOC to automatically pay the credit card on that due date, you eliminate another step. So now you're literally just, oh, money came, I got, I worked, right? Worked Monday through Friday, money through Friday, boom. I get paid on Friday. I see my paycheck land in the heloc. Oh, balance went down. How nice. Then you have your credit card wherever you go, restaurant, you go to the movies, date night, you fill up your tank, right? The kids need something, whatever. Every time you just remind, no credit card. Don't pull out the cash. You want the cash to sit in your heloc. You leverage the cash through your credit that you work so hard to build, right? Use the thing. So I got my credit card. Every time comes out of my wallet, boom. Swipe, swipe, swipe, swipe. You already know what you spend per month. You already have an understanding. You're not just willy nilly lollygagging out here, right? It's not all hunky dory. You're running your bills through a credit card. The bills that you know, you spend each and every month don't change. You've gotten past that point. You're disciplined, right? So you just paid off all your credit cards. You got plenty of space. Pick one that has the highest cash back rewards. You're running it. Okay, cool. End of the month, you get the due date. You don't even have to think because you preset the card to pay the statement balance each and every month. You don't even have to think. Why don't you have to think? Because all your money is sitting in the heloc, which has plenty of equity, plenty of space, and it's like sweet transactions. Dun dun, dun, dun dung. Easy, easy peasy. You simplify the whole process with a first position heloc. It's not always the same with a second position HELOC or a personal line of credit, business line of credit, There's a little extra work, not that big of a deal. But for the most optimal performance and least amount of steps required, first position HELOC is their best bet, in my opinion. So with that being said, take another look at the whiteboard here. Take your notes. Here is a husband and wife knocking out debt, tens of thousands of debt within one year, right? This is a one year window, right? Because it was four to six months. So that brings me out to maybe June, the latest of 2022. By June or sooner, I'm making my first chunk. And it'll take me less than four to six months to make that next chunk. So By December of 2022, by the end of the year, God willing, they get approved for the first lean heloc, right? Everything goes great. Their second chunk, like I said, probably will occur by December or sooner. 2022 knocks out the IRS debt, and from there they're literally just doing velocity banking on the heloc. They don't have to think about paying off debt. They just literally get paid. Money sits in the heloc, pay their bills, right? They live below their means. They don't overspend, they don't over leverage, they don't waste their cash flow. Their cash flow is 100% principal, sitting in the HELOC, readily available. And if they get to the point where they're like, hey, Denzel, we got the HELOC down to about 150k. It's got a credit line of 375,000. We're at the super low rate. We want to start investing in the marketplace or we want to start a business or we want to grow our income. We want to go from 8,000amonth to 80,000amonth. Okay, great. You don't have to wait to go to zero on your HELOC to do that. You can leverage your HELOC to establish a business, to establish second, third, fourth, fifth income streams, and have your income streams yield double digit returns, double digit profits, and that simply offsets the interest. And especially if you write a loan to your business at an interest rate and then you offset the interest through tax deductions. And if I'm not mistaken, through HELOCs, there are ways to get tax deductions on the interest that you pay. All right, so we're making a lot of headway here. For those of you who are brand new, I encourage you to go directly to my YouTube channel. You might have just. This might. This video might have just popped up on your feed because you're looking for ways to pay off debt. I encourage you to actually go to my channel, then go to playlists and click on Velocity Banking pregame work. If you're brand new or if you're a little seasoned, you've been watching a couple videos, go to Velocity Banking scenarios. So you can actually see all these different case studies under one playlist, right? And then as you level up, you'll see different concepts that I cover. Infinite banking, increasing income tax deduction, and then kingdom authority is like my end game, right? So with that being said, my name is Denzel Rodriguez, personal finance geek of the 21st century. It's been a pleasure. God bless and have a wonderful day.