$400k Debt Case Study With $400 Cashflow

[Music] so on the board we have a gentleman making the 6000 a month his expenses are fifty four hundred so obviously is his cash flow is low four hundred a month total debt is four hundred five thousand 188 oh nine and we have a personal unsecured line of credit with Wells Fargo for ten thousand dollars at 12.5% we are in January 2020 and he currently owes six thousand three hundred and fourteen dollars and seven cents on the personal line of credit itself so where where he had just did a chunk previously in 2019 so what we're doing right now is we're in the velocity banking process where all we're doing is dumping all income in taking expenses out trying to maximize cash flow as best as possible the monthly payment on the line of credit is eighty three dollars and sixty seven cents currently but when you're doing velocity banking that payment gets deleted right so it won't even show up on a month to month because technically you're paying it in advance with your income before it's actually even do so you're pushing out the due date each and every month therefore you're pushing the payment out and you're going to be pushing the interest out as well so you are going to be paying a hell of a lot less than 12.5 percent per month you'll be paying you know maybe ten to thirty dollars an interest if you're lucky right it could be less than that because the the balance owed compared to what's going in each and every month we're looking at maybe a thousand to as low as the three 1407 that's actually getting charged interests okay so so the money's going in it's killing all the interest and then money's coming out and then he'll get charged daily interest on whatever he's actually owed on a day-to-day basis so that's how this will be working here what I would like to do is also compare the debt snowball strategy I'm gonna start doing this more and more where we analyze the debt snowball concept of just making extra payments each and every month with the existing cash flow that is displayed here okay so these are conservative numbers he could potentially cashflow more nothing less than four hundred there are opportunities for him to increase his cash flow such as if I look at his spreadsheet right here on his living expenses I told them as I listen you could easily get rid of like you can cut your entertainment cost by 50 percent by 25% by 75 percent by a hundred whatever you feel comfortable with most if you want to go radical and you want to go super fast in terms of paying off debt then you're gonna have to have a level of discipline that you're going to need now in the velocity banking world that's not required for you to go that radical and still get really good results we know this but if you wanted to combine the debt snowball mindset of being super conservative cutting back tremendously and the velocity banking concept of maximizing every dollar trust me you're gonna go really fast okay so he could cut off cable he could cut off you know Netflix that you know crap is what I would say wasteful spending we could cut back on that stuff obviously that will get my cash flow another thing that we could do that like the debt snowball would go against is that we could not have an emergency fund that is separate from the line of credit okay so we could avoid saving money for a temporary period of time now when I say stop saving what I really mean is stop saving money separately from velocity banking so if you want to maximize your money even further you could say alright I'm gonna stop putting money in this savings account that's not doing anything for me it's money sitting in an account losing value every single day the purchasing power is is losing value every single day right you have inflation taxes and just the loss of money right and it's not doing anything for you maybe it helps you sleep at night okay I get it or having money in your shoebox under your mattress whatever it is now with velocity banking we could have a savings account in our line of credit the way we do that is every six months to a year we would increase the line of credit by the amount of money that you would save in that same time frame six months twelve months so say for example you're saving 200 a month times 12 that's $2,400 a year we could easily double our savings position by you know if I'm in January of 2020 by the end of the year or somewhere in between I could go from 10 to as high as 15 I can ask for a $5,000 increase which technically I would not use to my full extent right because 66% of the line of credit would be 9900 if I'm out of 15 kay limit so you had you're creating this space in the line of credit so you could be chunking right to pay off debt and let's say an emergency goes down in month three of your velocity banking method right you would have access to cash so it would be no different than having money sitting in a savings account some would say all right well if I had this savings a guy I wouldn't have to borrow and go into more debt that is true on an on the other side of the coin we could have had that same money working for us in the line of credit to bring down our Chungking that much faster save more money on interest and increased cash flow even faster so there is an argument to be made that well I probably would get more use in a shorter period of time by having access to the savings now and this applies with your retirement funds as well you could decrease or go to zero in terms of putting money away in a retirement account so essentially what we're doing is we're redirecting all this money that's going away from you and we're bringing it back to us through the line of credit which is at a very low interest rate when we're actually doing the concept so twelve point five is not really twelve point five all right it's more like one to three percent cost right and the way we're offsetting that is by what drastically wiping out the debts at a faster rate than that avalanche or debt snowball okay so I want to lay those out for you so he has those opportunities to do that or not to do that what I'm simply gonna do is just show me working with the four hundred cash flow and let's see what results we get and then we're going to compare it to debt snowball with the same 400 cash flow and go from there so very very easily what I did was I took the current balance on the line of credit six thousand three 1407 and I basically minus six thousand at fifty four minus six thousand at fifty four minus six thousand at fifty four I did not factor in the eighty three sixty seven as as adding to the you know lowering the balance so what I'm simply doing is under performing the results here right is that as I say that right grandma terrible so we're in January and I'm starting so I'm not even factoring in his uh his cash flow for January right so if we were in January then the number would be fifty nine 1407 so I'm actually starting in February so by the end of February that would be my balance so all I'm doing here is under estimating being conservative because with velocity banking it's tough to be really accurate with the numbers because things can go down emergencies right whatever the case may be maybe three four months down the road he decides to go on vacation with his wife and you know blow the whole concept out of proportion so far I have not had anyone really do that I've had had clients have emergencies which has set them back but then we were able to recover due to having access to more space in the line of credit so it served its purpose the same with having an emergency fund okay served its purpose so if we were to do velocity banking with just the four hundred then we would go from the sixty three 1407 down to somewhere around three thousand or less by temer like towards the beginning or towards the end of September this is just doing the 400 like I said I did not factor in the payment right I let that payment cover my cost of borrowing which from 83 67 interests you maybe 20 $20 20 $30 so you could do the math obviously the number would be less so I am confident that by September doing velocity banking my balance on this personal line of credit would be below 30 percent utilization and at this point in time what I would like to do is have him apply for an increase anywhere from going from going from 10k to as high as 20,000 being like the max or 15k all right being like the minimum now we can I am super confident that we can get this increase with no issue because when you look at how much debt he wipes out on the line of credit itself in a eight nine month period and then paying the monthly minimum payments on all of his other debts the only debt I did not put on here is the mortgage so if you're wondering okay that doesn't equal four or five it's because I left out the mortgage we're not even close to starting on the mortgage just yet we have all of these that we want to kill first and then we would jump to the mortgage but including the mortgage payment and every other monthly minimum payment you could also verify your increase to see if you're in the right neighborhood like for example with Wells Fargo their personal credit lines I think go all the way up to like 50 K if I'm not mistaken so it wouldn't be smart for him to try and go from 10 to 40,000 right but to verify an extra $10,000 increase on a line of credit or watching that is considering increasing their line of credit say you've had it for a year six months whatever the cases what I would do is add all your monthly minimum payments on your other debts that you've been paying off right just paying the monthly minimums add those numbers up and also add what you've paid down in the line of credit itself add that number up together you could say okay this is how much I've lowered my DTI my debt to income ratio right this is how much debt I've killed in the past X amount of months six months a year whatever that number is say it's ten thousand then you could say okay half of that I can definitely get in in in terms of an increase and then the most would be whatever that number is so if it's ten thousand boom so that's how I legitimize my reasoning for increasing the line of credit also according to the bank's information I would call and ask them hey when is my line of credit eligible for an increase on the line of credit itself when am I eligible six months one year do you do you want to see the balance at zero before I apply for an increase or it doesn't matter so in this case in most cases or it doesn't really matter if you have an existing balance on a line of credit because of the way that we're doing it there's going to be times especially over here you know six grand goes in technically he's paid off the line of credit right but then he's also pulling it out so when it registers in the credit bureau might show that he paid it off right somewhere around this time and that's when I would want to take advantage apply for that increase so it doesn't really matter if we have a balance on the line of credit before applying for an increase is it better to have a zero balance maybe not sure but what I do know is that the credit bureaus they actually your credit score would actually increase a little faster and this is according to some credit professionals that I've spoken to or heard them say so is the second-hand information but I've heard them say that by by keeping a balance on your credit card and actually getting charged interests would in fact increase your credit score now why is that because the credit bureaus and the credit institutions they only make money right when you don't pay off your balance sorry and you're paying all these interest rates so that's how they profit from money there's there's not even a service it's just debt and they're charging you on debt and that's their product right so I've heard that I don't know how true that is but me personally I'm always on the on the side of hey let's pay as little interest as possible okay thirty percent I'm gonna apply for an increase my chunk amount has now increased itself if I go to 15k if I go to twenty my chunk amount would be thirteen thousand two hundred now if I have an existing balance on the line of credit I want to factor that in I want to minus that from my chunk so you would do if I if I have a twenty thousand dollar personal line of credit in this for this gentleman you do 20 K times sixty six percent thirteen thousand two hundred thirteen thousand two hundred minus your existing balance on the line of credit that's your chunk that's a safe chunk you could go higher I would not recommend it you could go higher obviously you would kill more debt yes we understand that but this is a comfort level this is a personal preference so me my comfort level is always going to be that sixty six percent range range the only reason why we go above is if there is a large cash flow potential that we could you know acquire from this so we're gonna work with 15 K 15 K with 3000 ode I would go as high as maybe 8000 I would not do 10 if I did 10 plus 3 I'm nearly maxed out 13,000 only got a 15k limit if I do 8,000 plus 3 puts me at 11,000 not terrible I'm at like what 70 Plus percent utilization the reason why I'm gonna authorize that the number that I came up with was eight thousand seven hundred and ten dollars because of the cash flow gain potential that we could get from this move so looking at the debts we are going to adopt the debt snowball mindset of tackling the smaller debts first and going up from there simply from a perspective of building momentum a lot of this is personal you know you have your numbers but then you have to put the human being with the number with the numbers and that can often change things people's comfort levels so people who are looking at the debt avalanche method you better have some high patience for that because if we were to go after the mortgage knowing that we have all of this it doesn't really make too much sense to me you're gonna be there for quite some time trying to kill a 300 plus thousand dollar debt with only $400 in cash flow whereas if you went opposite and you went the momentum thus the snowball method right the snowball effect starting small going down a hill and it ends up a big big boulder right of snow well same thing with the when you're when you're doing your finances same methodology here so eight thousand seven 10 as my chunk in September would consist of this debt right here the is that right here there's death and that debt so I would get a $28 cash flow game $56 cash flow gain 23 and then 250 476 now why did I tackle those above the other ones pretty simple it's the fact that the balance is quite low and the cash flow gain is very reasonable so you get 360 176 and when I was talking to this gentleman you know he wanted to kind of go after this debt the 10,000 750 986 for a 261 20 cash flow game and we were able to prove that that would not be the best use of my money right even if i factor in this debt with the other two smaller credit card debts there it would be a lesser cashflow game so when I'm doing velocity banking I always my priority is cash flow over everything because I'm sure you can agree that with cash flow the more cash flow I have the faster I'll go period even with the debt snowball concept the more cash flow you have to work with the faster you're gonna go period there's no argument there so sometimes people look at the interest rates of what you're you're you know getting charged in interest which is reasonable I'm gonna do the same thing with velocity banking right but cash flow is usually my top priority over everything and so by September I'll wipe out 1 2 3 4 debts all at once and get 360 176 and so you do 400 cashflow plus 360 176 now you're at 761 76 and new cash flow and the balance on the line of credit should be anywhere from 10 K to as high as 11 all right remember we went conservative right didn't even count the cash flow for January so - $400 you could probably be someone in the neighborhood of twenty six and then factoring all those payments to 83 67 so technically the cash flow is for 83 67 but I didn't I didn't count that so that number would also bring that balance down I was even letting him know that look September should be your goal to bring that line I credit to zero but worst case scenario you'll have a balance of this much you shouldn't because I'm overestimating but you know it should be less than that for sure so based on that and around that number or less 10k - 11 K should be my balance on line at credit and then I'm just doing velocity banking with now a cash flow 761 76 plus you know that a 367 obviously these debts would have been lower when I actually chunked at them so that's why you know just do the math you know 28 times 8 months of payments boom on each debt - it tack on a little interest I even overestimated this chunk of eight thousand seventeen it could be less it could be less of a chunk - to wipe out those four debts and if there is space then we would apply it to maybe this debt right here the 36 2099 for a 48 dollar cash flow game now my objective now is to do velocity banking bring that line of credit back down to 30% or less or zero right preferably for this job and I would like to make a chunk by either January of 2021 so by the I would say what was that that's like a 13 month time frame we wipeout for debts at once and then the next debt that I would want to go after is gonna be one of these two debts right here I'm actually gonna skip over the smaller debts and the reason why I would do that is again cash flow at 3:53 is calling me for some reason and the two 6120 is also going to be very attractive because when you when you factor in thirteen months of paying to 6120 during the time of velocity banking and paying off other debts obviously this number is gonna be down this 15,000 eighty-five that number is going to be down quite a bit and the rates the interest rates are lower than these higher ones which also lets me know that more of this 353 is going towards principal rather than this 63 in the 48 which obviously may be a good third of that money is going towards interest on these smaller debts another reason why I am considering skipping over these two credit cards is he currently has 0% offers on these two not offers they're already in force so he is currently paying zero on these two cards and it's one of those cards where six months a portion of it expires on interest and then another six months later and other portion expires so for for this five thousand nine fifty 666 the interest will expire completely I think the whole debt expires in August and then this three thousand six 2099 a portion of it I think two thousand of it expires somewhere in October of 2020 and then the rest expires in like April 20-21 so that was enough for me to say all right I'm willing to eat some interest over here for a huge cash flow gain over here and an interest savings of course and then that would put me at a thousand plus cash flow going into 2021 and I'll be able to come right back to these two smaller debts and possibly knock out you know the remainder of one of these two so for example going into 2021 say January of 2021 or February I go to make a chunk right this is wiped out right this is done this is done this is the line of credit so I'm not even looking at that this was a car well that's done all right and we have we have these two guys these two big credit card these are all credit cards by the way and the only thing that is not a credit card on here is this debt this was a car so let's say I'm in January 2021 whatever the balance is on this one or this one I'm most likely going to pay off one of the two I might be really tempted to either try to tackle that but my senses might tell me or just looking at math not just senses but looking at math I might go ahead and just wipe this out all right this credit card for 261 20 and looking at the balance on one of these two I might be able to squeeze this credit card in as well might be able to squeeze that in there if I do so cash flow goes up to a thousand all right more than likely 761 plus 261 20 plus 48 and then like I said maybe doing some other things to increase his cash flow he is going to get a pay increase this year of 2020 that will help all right so I'm doing I do the chunk in January February of 2021 and I'm not gonna wait to hit zero on the line of credit I'm gonna try and get the line of credit to maybe 50 percent or lower especially if I have 15 to 20 K and credit limit and then try to wipe out these two like immediately right after because when you factor in now 15 16 17 months of paying 353 I'm gonna knock out wide a bit of the initial principal balance there okay so that's the way I'm looking at it right here for right now so for the first 12 months right just looking at the first 12 months in the first nine I get my cash flow to 760 176 okay and then I have you know to do velocity banking September October November December wipe out some nice debts what I'm gonna do now is let's go ahead and compare that snowball okay and let's see how efficient my scenario is here for him let's see if it makes sense so we're gonna do the same thing but on this side I get to be a little more accurate I'm going to give that snowball the advantage to save me some time here from trying to calculate on a month-to-month what what interests I'm paying so we're gonna use the same exact numbers with you know four hundred in cash flow and we're gonna start in January so if I'm if I was to compare and this is what everybody should do if you are a velocity banking student of mine is debt snowball is your benchmark it's your measuring stick for how well you're performing on velocity banking because if you're too close to debt snowball what I mean by too close is like you know you basically paid off debt at like the same time that's no ball did you might have did something wrong maybe you didn't chunk high enough you under chunked and you basically borrowed money for no reason because you would have gotten the same results had you just made extra payments so that's another reason why we do chunk at these bigger amounts is we want to get ahead of debt snowball so very easily we can say alright well if I'm gonna track the first twelve months against velocity banking what do I have to work with $400 times 12 is 48 hundred dollars this is the most amount of cash flow that I have to work with in those twelve months to knock out whatever debts I can knock out get the cash a lot following the debt snowball concept of just making extra payments we're gonna skip the baby steps I'm not going to include creating an emergency fund we're just going to do extra payments all right if I were to create an emergency fund which would be ideal because on this side you don't have a line of credit all right so if you're doing that snowball you don't have a line of credit therefore you don't have anything so you might want to create a mergency fund which would take three months to do with four hundred and cash flow you know you want to get a thousand bucks or more so it would take you three months just to do the first step this creating emergency fund right so we know that it would take about three months that would put you in March of 2020 to create an emergency fund but let's in this case let's give it to them let's say they already have an emergency fund okay cool with that snowball the first debt that I need to pay off is obviously going to be the smallest one the two 1585 so with four hundred cash flow - to 15 85 equals what alright and what I'm gonna do is I'm not even going to I'm not going to factor in the interest to make the numbers look better and let's see if it beats that snowball I mean let's see if it beats velocity banking even with all the advantages that I'm giving on this side and this is important to do right to really verify how well you're going all right so four hundred minus two 1585 that leaves me with one eighty four fifteen right so that means I got a hundred eighty four dollars and fifteen cents left of cash flow for the month of January to 6502 minus the monthly payment for the month of January twenty eight dollars and then minus 180 for fifteen so at least me with fifty two dollars eighty seven cents the end of the first month alright so this would be the first month January we got 52 87 left on the second smallest credit card second month I now have four hundred and twenty three dollars cash flow okay - fifty - 87 alright cash flow goes up twenty eight dollars so for twenty three - fifty - 87 now I'm left with three seventy thirteen in cash flow plus twenty eight dollars okay so three seventy plus twenty-eight now we're at three ninety-eight thirteen in cash flow second month so I'm in February now the next debt obviously to tackle in this particular case would be the eighteen seventy seven seventy six okay now I did say earlier that on this side you don't have a line of credit but in this case he does owe money on a personal line of credit so we do have to you know factor in there in terms of us paying it off which we will but we won't use it so we'll pretend like this was a loan we'll pretend like this personal line of credit was alone okay we'll just firfer debt snowball seek so the very next at the tackle is the eighteen seventy seven seventy six and we are in February second month right here February I got three ninety-eight thirteen in cash flow eighteen seventy seven seventy six minus fifty six dollars from January - another fifty six for February I'm at 1017 sixty five seventy six - that 398 thirteen thirteen hundred sixty-seven dollars sixty-three cents is my remaining balance end of February so now the third month March March comes along you gotta do 1367 63 - so 1367 63 my new cash flow is the four hundred plus 23 plus $28 plus now 56 so 507 we're just gonna - 507 each month all right until we get that down to zero so 1367 63 - 507 860 and the March and then we'll do it again - 507 again 350 360 - yeah boring this is but that's not why mean this is just uh this takes so long the other thing you have to remember guys is when you're doing debt snowball for most people you have to wait till the end of the month until you have all your cash flow to actually make that extra payment you have to be careful not to spend your cash flow right you have to you have to hold it maybe in a separate account okay this is cash flow okay this is castle okay this is cash flow and then a month make the payment you have to understand that when you're dealing with any type of debt simple interest amortize that the time that it takes for the money to be paid right to make that extra payment if you wait to the end of the month you're most likely going to get charged the well especially for simple interest debt because with simple interest credit cards credit lines you the interest needs time to accrue so if you give it time to accrue guess what your gonna pay more interest but like I said we're not even factoring the interest we're trying to you know give them the benefit of the doubt here and see just how well it works so February this was March this is April and now come May twenty twenty five months in haven't even haven't gotten that far yet but technically we have more casual than that snowball right now right I'm not viable seven already so 507 - 350 363 and now I'm down to I have that credit card paid off it's done 153 37 is left in cash flow for the month of May so I can apply that 150 337 at this credit card the 3006 2099 that's the next card that is the next smallest debt it is at 0% but I did say earlier that it expires in like I think one of them expires in August of this year and then you know I think it was this one this one a portion of it expires in October and then the rest in April this one expired already in August and then go from there but we're not gonna worry about that so 153 37 let's see May that's five months so $48 right let's say I'm going after this one now we're gonna go after this with debt snowball we've already gotten rid of this one we've gotten rid of this and then we got rid of that gone so now we're dealing with the circled one $48 times five months that's 240 okay so I'll just put that right here do 43,000 620 and 99 cents minus 240 minus the 153 cash flow balances 3002 2762 end of May okay and now my cash flow is the 400 plus the 23 plus the 28 plus the 56 and now the 48 so 555 alright new cash flow 555 awesome so now we're just gonna now this is obviously gonna take some time so three thousand to two 7.62 - 555 I'm at 2006 7260 - zoom - 555 again two thousand one one seven six - July - 555 again one thousand five six - six - July now I'm in August one of the credit cards that has expired on interest now - 555 down to a thousand seven sixty - August September September September with velocity banking by September I still technically have not paid off any debts yet we would have applied for an increase and then paid off for debts at once then that brought me to 361 76 so by September is where velocity banking is going to take off from debt snowball that snowball had the lead in the beginning right it immediately had more cash flow we paid off the smaller debts first I'm at I'm at 555 right now over here I'll be at 761 76 that line of credit right most of it got knocked out but not all of it but I would have paid off four more debts okay so let's go over here let's keep going - 555 now I'm at 450 262 is October another credit card has expired an interest by this point in time so now 555 - 450 - 60 - November I would have paid off this car so November this is done and I'll have a hundred and two dollars and 38 cents left over that 102 38 can go here this will be the next credit card to knock out all right that line of credit would be down maybe around where this number was and then this number is gonna be down a bit so now November we can do $63 times 11 months of payments that's 693 so we can go like this five thousand nine fifty six and sixty six cents - 693 what do you get five thousand nine 56 56 - six nine three it's five thousand two sixty three sixty six and then - an extra payment from the cash flow of 102 thirty-eight your balance on that credit card that I have circled it's 5,000 161 28 end of November and now my new cash flow goes up sixty three dollars so 555 plus sixty three dollars is 618 December this is the twelfth month now thousand 160 128 - 618 5000 160 128 - 618 so you'll be at a balance of 4,000 543 28 so check this out I gave them a 3-month advantage to let them build an emergency fund so I assumed that they already had one if they did if this person does not have an emergency fund which in this case this gentleman does not have an emergency fund he only has four hundred dollars cash for a month his emergency fund is his line of credit on this side three months to make an emergency fund that would put me in March of 2021 for me to get a balance over their own line of credit on the on the credit card the other thing I gave them an advantage was I didn't even factor in the interest rates on any one of these debts I simply went off principal payments and pure cash flow numbers right so by December of 2020 best-case scenario for debt snowball is that their cash flow would be at 618 dollars and they would have paid off one two three four debts so they would have four debts paid off working on the fifth and their cash flow would only be six hundred and eighteen dollars velocity banking even under estimating velocity banking results right by September I'll have a cash flow of seven sixty one seventy six so that is let's let's see seven sixty one seventy six cents - six eight so I have an extra one 4376 on top of that snowball times the month of September October November so four months so I'll have five hundred seventy-five dollars and four cents more cash flow for 2020 then debt snowball and I'll have let's see one two three same amount of debts paid off for but more cash flow to work with right so for debts paid off sooner right they have four debts paid off by December we have four deaths before debts paid off by September and now we're doing velocity banking technically you could say that on this side we also really did a lot of damage to the line of credit itself so that helps right that adds to our advantage here by December or January we would be making our second chunk potentially right towards what was I saying earlier towards one of these two debts and possibly squeezing in the the 59 or the 36 one of those two right so now you see the math the difference and this is perfect for those that you know yes you already believe in velocity banking but it's important to test yourself it's important to run your numbers against that snowball and see all right man I'm happy shoe not only that I have the capital I keep my castle in the process I used the bank's monies first and then I just simply paid myself back at a faster rate so when it's all said and done when this person is completely debt free they'll have a large line of credit personal line of credit they'll have all these credit cards to work with when we get to the mortgage they'll have a humongous HELOC that we can use to borrow from to invest in real estate to invest in a business to invest in I don't know the stock market Forex well whatever he wants to do we can keep creating more wealth and building an income that will sustain itself where we won't have to work anymore [Music]

Channel: Denzel Napoleon Rodriguez

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Keywords: Personal finance, Finance Geek, velocity banking, Denzel Rodriguez, kingdom authority, kingdom builder, denzel rodriguez velocity banking, denzel rodriguez heloc, denzel rodriguez credit card, denzel rodriguez infinite banking, denzel rodriguez life insurance, denzel rodriguez youtube, denzel rodriguez website

Id: 4otyJzbWwJg

Length: 51min 20sec (3080 seconds)

Published: Mon Jun 08 2020