Today, let’s look at one particular claim by those pushing the money merge account.
Is it really so complicated? Do I really need to spend time pondering the 720 ways to line these up? (If you don’t know where 720 comes from see this great post on Factorial Math.) Do I need to spend $3500 to figure this out?
Well, that wasn’t too bad, a bit of cut and paste and I lined them up by the rate on each debt. Maybe that’s the correct order. What I don’t know is whether that 7% line of credit is a HELOC loan that ‘s tax deductible, and if so, if the user is able to itemize and take advantage of that deduction. In the 25% bracket, that 7% rate needs to be adjusted to 5.25%. Maybe that’s worth $3500. Wait, MMA doesn’t ask for your tax bracket, and wouldn’t take this simple issue into account anyway. So, again, one of the advantages of MMA is really a nonstarter, trying to create value where there is none. I do have one rhetorical question to ask here. Student loan, ok. Car loan, I understand. These people went on to finance a boat and furniture on payment plans, and then went on to rack up nearly $16,000 in debt on credit cards. Are these same people capable of stopping their spending cold turkey, and putting all their discretionary income toward debt repayment? Maybe they should just start by throwing every extra cent they have toward that credit card debt, and sit at the kitchen table to discuss their budget. Me, instead of fancy bar charts which I admit look pretty, I am a spreadsheet guy.
By lining up one’s debt in this manner you can easily see the impact of a payment on the interest you will pay each year. This can be done on a late model computer you can buy for $250, and a free copy of Open Office. Take another $100, and find a guy who will carve the words “pay your highest interest debts first” into a nice piece of wood to hang in your kitchen. That’s all the motivation you need.
Joe
In looking at this layout, I would absolutely pay off the furniture loan first. Why? Because most retail establishments are NOTORIOUS for playing games with consumer loans. Odds are, at 6% interest, that’s a teaser rate and I would want it GONE as quickly as possible.
That’s something MMA isn’t going to consider. The first step is as I showed, but of course, taking other details into account you should decide on the final sequence, in your case you have more information (the shadiness of the lender) for that particular debt. And make your decision accordingly. No problem for me.
Thanks for visiting.
Jim, while I’m a fan of Joe’s, it’s not “his technique”. It’s a widely-accepted and easily-understood method of debt reduction that is centuries older than the MMA and it rendered the MMA obsolete before it was even created.
LOL – Craig, I read “technique” to mean “presentation style”, not giving me credit for the concept I demonstrated. Either way, thanks for visiting, and being one of my fans.
Hey Joe. I have always been a fan. Thanks for sharing these tips. I’m going to try it out sometime and see how I make out.
You miss the whole point about stagnant money, how interest rates are calculated, and the ability to use low cost interest money to pay off high cost interest money, like the 80% interest you pay on a mortgage for the first 5 years….. You need a little bit more study and a bit more math
Blaine
Respectfully, you missed my 60+ pages of analysis. I’ve addressed the rates, the interest, and all of it. I have no new things to discover regarding MMA. 80% in first 5 years? No, the interest rate is the same 6% (as in the example) for every year right to the last month. The fact that in the first 5 years 80.7% of the payments made are interest is really of no point. If you pay huge chunks to principal, the ratio swings down, so what? As agent 906832 (if memory serves me), I’ll leave your link up. If you’re not a one shot visitor, read my PDF compilation, and visit again. With real numbers, and a real story to tell.
Note – Blaine had linked to a site that’s no longer active. I get error reports on broken links, and remove them from time to time. Now, that it’s 3 years later, as I re-read his remarks, I’m reminded how foolish people can be, they are so desperate to believe in fairies, all it takes is one person to tell them that fairies exist. One thing I learned in the years dealing with people sell the MMA scam – if you understand numbers, you shouldn’t get fooled.