The Velocity vs Volume Conundrum: Can You Really Pay Off Debt Faster

The Velocity vs Volume Conundrum: Can You Really Pay Off Debt Faster?

As someone who’s spent years dissecting the debt machine, I can tell you that most people are misinformed about how to pay off their debts efficiently. Banks and financial advisors love to preach the gospel of “paying more” or “cutting expenses,” but what they’re not telling you is that these tactics are based on a flawed assumption: that debt is solely a function of income versus expense.

In reality, debt is a complex system with multiple variables at play. Two key factors that determine how quickly (or slowly) you can pay off your debts are velocity and volume. Velocity refers to the rate at which you’re paying down your principal balance, while volume refers to the total amount of money flowing into your accounts each month.

Most people focus on increasing their income to boost their volume. While this may seem like a no-brainer, it’s not as effective as it sounds. The truth is that most jobs don’t pay more than they used to 10 years ago, and many people are actually seeing their purchasing power decrease due to inflation. So what’s the real solution?

The answer lies in velocity. When you focus on paying down your principal balance quickly, you’re not just reducing your debt; you’re also reducing the amount of interest you owe each month. By increasing your velocity, you’re essentially “stealing” money from your creditors.

One key concept that can help you boost your velocity is rate decay. Most debts have an introductory period with a low interest rate, after which the rate increases dramatically. By paying off your principal balance during this initial period, you can minimize the amount of interest you owe each month and accelerate your debt payoff. For example, if you have a credit card with an interest rate of 12%, but you pay $500 per month for the first year (before the introductory period ends), you’ll save over $300 in interest charges.

Another strategy to boost your velocity is to redistribute your cash flow. Most people focus on saving every last penny, but this approach ignores the power of compound interest. By applying a fixed percentage of your income towards debt each month, you can create a snowball effect that accelerates your payoff. For example, if you have $500 in credit card debt and you apply 10% of your income towards it each month, you’ll pay off the principal balance in just over 4 months – even if interest rates are high.

To give you an idea of how these strategies can work in practice, let’s say you owe $10,000 on a credit card with an introductory period and a final balance of 18%. By paying $1,500 per month for the first year, you’ll pay off the principal balance in just over 6 months – saving over $3,000 in interest charges. After the introductory period ends, your monthly payment will increase to $2,500, but by this time, you’ve already built up significant equity in your assets.

In conclusion, paying off debt faster isn’t about “budgeting harder” or “cutting expenses.” It’s about understanding the hidden mechanics of the debt system and making smart financial decisions. By focusing on velocity and redistributing your cash flow, you can accelerate your payoff and save thousands of dollars in interest charges. Don’t believe the hype – it’s time to take control of your finances and build wealth on your own terms.