Velocity Banking is a technique in which you use one line of credit as your checking account. All spending and all earnings go on that account. The idea is to reduce your average daily balance on the line of credit to reduce the amount of paid interest. As your line of credit balance shrinks toward zero, you can take out a lump sum of cash to pay off another debt. You repeat this until all your debt is paid off. One line of credit option is a credit card. However credit cards present challenges that bank lines of credit do not have.
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Most people do not know that many banks offer the ability to get a teller cash advance. That is, you can ask the bank teller for a cash advance on your credit card. You simply need to present your credit card and identification. Doing it this way bypasses ATM limits and does not require you to enter your PIN. You do not generally need to be a customer of the bank to get a teller cash advance. But if you are a customer, then it is that much easier to deposit the cash into your bank account while you are with the teller. You can then take this cash advance to pay things that you can't pay with a credit card.
Obviously, credit card cash advances can be expensive. Their interest rates are much higher than purchase interest rates. And cash advance interest starts accruing immediately rather than in 30 days the way purchases do. You want to be able to pay off your cash advance as quickly as possible to minimize your interest charges. And you may want to read the card member agreement to make sure that your payments in excess of the monthly minimum payment will go towards the highest interest balances first, which are usually cash advances.
I went down to my local Chase Bank branch to request a cash advance on a Discover card. My Discover cards offer the greatest cash advance limits. I already knew that the ATMs would not permit it. But I was not certain if the limitation was due to just the ATM or the whole bank. Now I know that it's the bank. The bank teller was glad to help. But the Discover card attempt failed. I substituted a Visa credit card from the same bank. The transaction was approved. The bank teller deposited the advance into my checking account. There was no cash advance fee charged like I would have had at the ATM. I asked if I would be able to do the same from the drive-thru window. The teller said I would not as there is no way for me to swipe my card that way.
If I were to do Velocity Banking with the Discover cards, it would have to be at my local credit union. They do process Discover card cash advances, which I already tested. However, I would need to open up a checking account to make it work. The Discover card cash advance limit is almost three times the cash advance limit of my Chase card. It would be much easier to do velocity banking with a larger margin of credit.
Discover is not as widely accepted as Visa and Mastercard, which is a problem for a couple of my expenses. For example, my water bill only accepts Visa and Mastercard. I suppose I could use the credit union debit card for those payments, which is a Mastercard.
My other cards from Visa and Mastercard with smaller cash advance limits have the advantage of wider acceptance. And, it's possible that with high usage of my existing Visa card that the bank might increase my credit limit, and the cash advance limit, eventually.
The biggest disadvantage to teller cash advances is that you'll need to visit your bank branch often. But, maybe this will make you think twice before buying things you don't need on credit.
My long term plan is to pay off other cards and close them down. I went wild opening up credit cards a couple of years ago. I need to pare back and limit myself to one or two good cards. As long as I dump entire paychecks into my card, I should be able to pay off everything in time. It is advantageous if the credit card and bank account are with the same bank. Saving on cash advance fees and avoiding payment float to reduce interest would help too.
You may be wondering, why not just pay things off with cash? The reason is that you want to use your cash to reduce your credit card average daily balance until you need the money. If you have cash and need the money the next day, just keep the cash and make the payment. But if you have a few days until you need the cash, keep it in the credit account until you need it.
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