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.