In a post titled “Money Merge Account Evolution” we are subject to hyperbole, but no numbers. No proof. The latest version of MMA claims that if one has a mortgage along with ten other debts, they somehow need to consider 3 million possibilities before paying a dollar to any of these debts. Wow! Did he say 3 million? Is my rule “pay the highest interest rate credit card first, until it’s paid off” too simple? Should I spend even a millisecond deciding between paying my 18% credit card or prepaying my 5% mortgage? And do I really need software to help make that decision?
To be clear, I don’t suggest that MMA is a scam. It certainly is not. It does exactly what it claim it will do.*It also lags the math that a simple spreadsheet can offer. A beautiful site called “Discover Money Merge” offers an example, one that spans the just over 10 years that MMA will take to retire a 30 year mortgage. Please view their example, I won’t copy their image to avoid any copyright issues. Now look at the year end numbers from my simple spreadsheet (this is for a 30yr, fixed, 6% loan. Their assumption and mine is an extra $1000/mo is available to pay the mortgage.)
| Year | MTG Bal | Tot Debt Pd | Total Int |
| 1 | 185208.41 | 14791.59 | 11597.63 |
| 2 | 169504.52 | 30495.48 | 22282.94 |
| 3 | 152832.04 | 47167.96 | 31999.67 |
| 4 | 135131.23 | 64868.77 | 40688.08 |
| 5 | 116338.68 | 83661.32 | 48284.75 |
| 6 | 96387.05 | 103612.95 | 54722.33 |
| 7 | 75204.84 | 124795.16 | 59929.33 |
| 8 | 48835.45 | 151164.55 | 63829.87 |
| 9 | 28840.44 | 171159.56 | 66343.35 |
| 10 | 3492.10 | 196507.90 | 67384.23 |
| 11 | 0.00 | 200000.00 | 67408.24 |
Now compare this to the example linked to above. My spreadsheet – total interest paid, $67408.24, their example, $70,428.19. Where is the savings? Why didn’t the use of the HELOC they recommend along with the extra risk of borrowing funds short term at a higher rate provide any savings at all? If you are completely new to this topic please see the link list above for more details. More to come, I’m sure. If you’d like a copy of the full spreadsheet, please submit a comment with your email address and I’ll send it along.
Joe
* In the interest of disclosure, my view has changed. I left the post above in tact, but my research and reading of all the claims has led me to a different conclusion. The product is a scam, and will cost you far more than ‘do it yourself’ even if the software were free.
Related JoeTaxpayer Posts- Your Money Ratios
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- Money Merge Account Analysis Pt 36
July 15th, 2008 at 8:23 pm
Joe,
Would like a copy of spreadsheet. I was just introduced to MMA and am not convinced. They tell me I can pay off 295,000 balance along with 70K in interest on top of that in 8.3 years. The numbers just don’t add up and they keep pointing to the complicated math formulas and the Heloc to accomplish.
Without dumping in lots of extra cash which I don’t have, only about $350 extra a month, it just doesn’t compute. They sware it will work but I am skeptical.
Thanks,
Mark in Naples, FL
July 15th, 2008 at 9:42 pm
No, it makes no sense. A new mortgage of $295,000 at 6%, has a payment of $1768.67. The $350/mo extra will cut the time down to just under 20 years. Not bad, but the classic MMA hyperbole wants you to pay an extra $1000 against a regular payment of $1200, nearly twice the payment to get the mortgage paid in 10 years.
Joe
July 17th, 2008 at 4:28 pm
Greg – I am on the fence. I can understand that it CAN work. The earlier in the month one is paid and the later in the month the bills are due will create more savings. I find it curious that the MMA examples I find online, by UFF itself, show no savings at all from the HELOC. On your site, the HELOC use is responsible for just over 1% of the total savings compared to no HELOC at all. I think your site is honest and worth viewing. I also think that UFF uses hyperbole and implies some magic to HELOC which just isn’t there.
Joe
July 17th, 2008 at 4:09 pm
The “HELOC Shuffle” does work and it can (I emphasize “can”) be more effective than regular extra payments. Mark, if you want to enter your numbers and see the details of the work, go to http://www.mydebteliminationcalculator.com and try out my software (for free) to show you the results that are possible. The results will also show in all their gory detail each transaction (and there tend to be a lot of them.) You can follow them one at time as see how the system is working. You can also compare the results versus an amortization schedule with the regular pre-payments from an online calculator and see how the HELOC based system nibbles away at the debt usually a little bit faster.
Joe, I used to have the same opinion you do. Then I built my piece of software to see for my self. The system isn’t perfect – there are risks as I have seen you bring up in other blogs – but it does actually work.
Also, Joe. Nice site.