Using the banking system and credit effectively, or what we call Paycheck Parking

     Here's the one you've all been waiting for! This one is a fairly new skill, and one that we are still working on in our own household. Before we found this one, we basically screwed ourselves by following the advice of a certain money guru, and closed our credit card accounts after a decade of good credit use. Don't do it! You'll need your credit to do this, especially if you want to follow up with the asset buying that can make you money with  much better returns than any paper investment you can do and with less risk. It will set you up for a better retirement than your 401K can give you. In our case, we are having to start all over again to rebuild a credit score from scratch. If you currently have open lines of credit, then you are ready to go, but don't worry, even if you have a bad credit history, or low FICO score, you can still catch up and do this.

     This is definitely something that is missing in our public education. Without this type of knowledge, it is no wonder why so many people went out and bought a house with sub-prime loans, and are now underwater. They didn't understand interest rates, mortgages, and banking! Do you think if they knew how adjustable interest rates worked that they would have signed on? How about interest only loans, where there is no equity gained in the house when a payment gets made? That even after several years of payments that they would still own almost none of house? I think that whole subprime lending deal was deceptive and criminal. The banks knew they were lending to people who didn't understand what they were signing.
     So here we go. How to increase your credit, repair or create a credit score, and pay off your debt, possibly your house, sooner.

     A word of warning though. You must have good self control over the use of credit to use this method. You cannot be a shopping addict and hope to gain anything from this method. This method is to help you gain ASSETS-money vehicles that will make passive income (money you don't work for)  for you. Once you have learned how to create the asset column on your personal financial statement, then you can go shop. :)

Assets: Something that creates an inflow of money. (GOOD)
Liability: Something that creates an outflow of money. (BAD)

     This method involves using banking effectively to NOT use those interest-bearing accounts, but lines of credit, to build your credit, pay off debt sooner, save on interest payments, and raise your credit scores and limits, all in a neat little package. I know what you are thinking: How can I pay off my debt sooner, by using more debt? Hang in there, it will all become clear. And I implore you, to watch in full the webinar I will link you to, because I really think the guy from VIP can explain it much better and with examples, than I can.
     Most people either have or are aware of the common savings and checking accounts at your bank or local credit union, and use of those accounts is usually a daily thing. Some of those accounts are interest-bearing, and many folks choose those, since it seems smart to gain a little money for what you keep in there.  Another 'safe' vehicle for gaining interest is the certificate of deposit, or CD. But what most people don't realize is that the interest rates you get are very minimal for both, and with the CD, you are tying up your money in a savings vehicle with little to no access to those funds should you need them, and in order to keep earning the upper end of interest in your bank accounts, you have to keep a high daily balance in your accounts, and you can't use that money.
     In this method, your goal is going to be to have total use of your funds, while increasing your credit worthiness, and, increasingly, having the means to purchase assets that will outperform any interest charges on your debt weapons.

Debt weapon: A line of credit used to reduce interest paid, on other much larger credit debts or liabilities, such as mortgages. Debt weapons can be personal lines of credit, credit cards, business lines of credit, hard money loans, etc.

     First we have to talk a little bit about FICO score, since that is the number one tool creditors and banks use to determine your creditworthiness in order to loan you any money. Now there are many nuances to how the credit score is determined, and they look at many factors: How much credit you have available to you currently, how much of that credit you use monthly, if you pay on time, and do you have any bad debts you haven't paid. While all of those things are a factor, the one most useful to you, and the one you have the most control over, even if you have messed up your credit in the past, is the debt to credit ratio. That is, the percentage of debt you use regularly, compared to the amount of credit that is available to you. Here, the magic ratio is 1: 4. You should only use 25% of the credit that is available to you at any given time. Creditors want to see that you are not so overextended that you must max out your lines of credit. This is one constant you'll have to be conscious of while working this method. You can still carry a balance on your cards, but keep it paid down to 25% of your line or less. Several months of this, and you should be able to call up your credit provider and ask for a credit line increase. If they refuse then just politely tell them that you have offers from other credit providers offering lower rates, but you would like to keep your account with them since you already have a working relationship. Still no? Then just ask to speak to their supervisor. People higher up in the chain usually have the authority to make decisions regarding increases, and most will do so, you just have to press them a little. If you still get nowhere, just thank them, and try again in a couple of months. If you stick to the plan, eventually you will be granted the increase.
     You can check after the end of every financial quarter, but usually after about six months you there should have been an improvement to your credit score. You can use your credit cards to pay off previous unpaid debt and get that reported as paid to the major credit bureaus. The longer it has been after being paid off, the  more points you'll gain to your credit score. If approved, you can use those 0% introductory rates to your advantage to pay debts, such as medical bills and they'll go reported as paid and start to ease off your reports over time, while you pay the balance off the card, a bit at a time. While it seems not to make sense to  put a non-interest debt onto a interest charging credit line, the idea is to clear your debt faster and clean up your credit report. If you can do that by putting a balance on a card in good standing with smaller payments, then the larger of the whole debt that is due in full and reported as delinquent to the credit bureaus will go marked as paid, and the stress is less with the partial payment method.
     Okay, so know you've got your delinquent debt out of the way, and your credit score has increased a little. Now what? Now you want you want to lather, rinse, repeat. With your improved credit score, you can now apply for other lines of credit. Continuing to pay off debt and using only 25% at a time. A great vehicle to apply for is the personal line of credit, or home equity loan. These are the zingers that you'll use to really get you going.
     Once you are able to get a bank to work with you by granting a line of credit (LOC), you can then begin using the paycheck parking method. This is where you are going to 'park' your entire paycheck into the line of credit so you can use that line to reduce you mortgage payments by a large margin and greatly reduce the amount of interest you pay on your mortgage over the lifetime of your note.
     Here, you are going to use your line of credit and pay down a few thousand on your mortgage. This is called a balloon payment.When you get your paycheck, you pay it into the line of credit, meeting the minimum monthly payment amount, and pay your monthly expenses out of that line of credit. You do this for a few months while you pay down the line of credit you used to pay on your mortgage balloon you just made. Once that is paid down, you do it again, making another balloon payment to your mortgage.Using this method, you have now: reduced interest you are going to pay on your mortgage, paid on your debt weapons to meet the 1:4 ratio and improving your credit score, met your monthly expenses, and increased the equity value in your home by paying more on principle to your mortgage. The more on principle that you pay on your mortgage, the more leverage you have in borrowing on a home equity loan. Now you have an extra debt weapon you can use in the HELOC (home equity line of credit).
     You can see that over a couple cycles, you have tremendous borrowing power. With this leverage, you now have access to funds to add to your asset column on your personal financial statement. The tricky part is finding a good investment vehicle where you are not going to lose your shirt.
     I'm going to leave you here, with the link to webinar on VIP Enterprises. And although it is a sales webinar for their financial coaching, I urge you to watch it all the way through. At the end, if you want to do the coaching, it is quite affordable, even if you are living paycheck to paycheck. It is an investment to your education after all. He gives real life examples of how this all works together. He goes a bit fast, and there is no 'pause' feature, so I suggest you grab your pot of coffee, a pencil and paper, and sit down for one of the best lessons you will ever have in your financial education arsenal. It is long, just about an hour, but it is well worth the time spent to help you improve your credit and pay off your house in a few years, instead of decades, while saving you tons of money in interest, placing you in a unique position to buy assets that will help you retire with much more peace of mind than just relying on your old 401K.

To get into the webinar, go down to the dropdown menus on the right side of the page.

I've got my coffee. Now take me there!

I'd love to hear what you think after watching. Is this something you think should be taught in school? Were any of you caught up in the subprime lending debacle, because you didn't understand?  Even without the coaching, do think this is going to change your life in some way?