One thing I continue to run into are the post of people who claim to use the Money Merge Account, and clearly don’t understand simple math regarding money. When one is paying off their debts, to do it as quickly as possible, extra payments (beyond the minimum) should be made to the higher rate accounts. This is a truism, period. It’s true regardless of what the minimum payment was or what the total balance was. This is “the fastest was to zero.”
Now, I’ll say, financial celebrity Dave Ramsey offers his ‘debt snowball‘ method, which suggests that the extra payment goes to the smallest balance, regardless of interest rate. I’ve discussed this, and been told that since this method gets rid of account balances, reducing outstanding accounts to pay, that the psychological impact is beneficial. Ok, if you save the $3500, and want to use Dave’s method, I’d not argue too much.
This brings me a quote from an MMA KIA (know it all) who states;
Sorry to the high interest debts first cultists, but in my case, you’re simply wrong. It would have taken me more than 2 1/2 years longer to pay my credit card first! Why? When I pay my car off first, that’s another $387 that goes to other debt every month, vs. only about $60 from my credit card being paid off. My mortgage with 26 years left will be paid off completely in about 8 years. And all my other debt at the same time. AND I’m not paying any more than I was before. As a matter of fact, I’m paying LESS now than I was before because I’m not paying a (so-called) financial advisor anymore to tell the wrong way to get out of debt and build wealth.
By the way, who cares if you don’t agree with halfcircles point? Your opinion was invalidated here as soon as made the pay higher interest debts first argument. You’re simply wrong. Admit it and get over it. Are you taking the time to make sure I get out of debt faster? Nope. But my software is. Just like I’m willing to invest a few bucks in a GPS system to get me where I’m driving faster, I’m more than willing to invest a few bucks in financial software that gets me to financially free faster, and so far is much more sound than your incorrect advice.
By the way, a $1000 debt at 10% with a $20/mo payment should NOT be paid before a $1000 debt at 5% with a $200/mo payment. It will take longer to pay off the debt that way and cost more in the long run. Some financial genius you are, You only look at part of the ‘algorithm’.
So here is a satisfied customer who has convinced himself that the numbers any mere mortal would show him cannot be right. So I didn’t bother to create a 1 year spreadsheet showing the difference in payout using the right method vs what he suggests. Why bother? Funny thing about his (and other’s) GPS analogy; In the past 3 months I had a GPS take me miles from my intended destination one time (it confused similarly named streets), and into a private office park which offered no back exit. The GPS believed it to be a through street. For my blindly following my GPS, I lost a total of 30 minutes over those two instances. How much money are you willing to lose using this so called “financial GPS”?
Until next week,
Joe