Money Merge Accounts: Merging $3,500 Down The Drain
George Boelcke CCP
June 01, 2008
What does it take to pay off your mortgage loan quicker? If your answer, and it´s the only answer, is to pay more money, more quickly onto the balance - you´re right. It really is that simple, and no magic software in the world will change that.
However, high pressure marketing, preying on uninformed customers and our desire to want to become debt free create the perfect combination for marketing something called a $3,500 to $5,000 Money Merge Account (MMA). Most often, they are described as "that special software that lets you pay off your mortgage way faster through a line of credit."
If only that were true. Repeat after me: "If it is to be it´s up to me." Becoming debt free will not happen through some software and to keep doing what you´ve been doing, because you´ll keep getting the same results. If you keep doing what you´ve been doing, these MMAs just have you $3,500 or so further in the hole!
MMAs are designed to take every extra dollar in your account and apply this full amount to the balance of your loan in order to reduce your interest. To accomplish that, you will need to set up a line of credit where your entire paycheck is deposited and immediately goes onto your loan balance. That sounds great if you only deposited your pay and that were the end! But the first thing all of us do after we deposit our check is take out money to pay bills and to live on.
Here is an example using $1,500 each pay period:
On the 1st of the month, the whole $1,500 is deposited to the line of credit and thus onto the mortgage balance.
On the same day, the regular mortgage payment comes out of the account, we take out money for groceries, life, utilities, the phone bill and whatever else. The next day or two days, tops – what´s left? Maybe $100?
The magic savings: 1 day of $1,500, or 25 cents of interest and 49 cents a month for the extra $100 that´s actually left.
The middle of the month, another $1,500 is deposited. Once again, however, groceries, gas, money to live on, credit card payments, car payments, insurance and whatever else comes out within a day or two. The $1,500 has, again saved 25 cents of interest and if another $100 is left after everything else is paid, there´s another 24 cents of interest saved for the last two weeks of the month.
The final score: $1.23 of interest savings. At that rate, you have to know you will never even come close to recovering the $3,500 cost of this software!
At the end of the day, only the money you are NOT spending "sticks" in your account and can go to work on your loan balance. If that amount is the $200 in our example – send it in with your next payment. You´ll accomplish much the same thing!
If your income is higher, or your payments are less, you´ll have more money left over at the end of the month and can still send it to your lender as a principal reduction.
But if you run out of money before you run out of month – you´re now about to make things worse – much worse. This magical account is a line of credit that you can also tap into beyond the deposits from your income. That makes it very likely you´re not only out the $3,500, but potentially going further into debt! This is not a question of spending money to make money. It is spending money to waste money. In fact, the nationally syndicated Clark Howard gives it a "rip-off alert," and rightly so.
Another line of credit and possibly more debt is the last thing anyone needs, and it does not solve financial problems or make magic payments on your mortgage loan. If someone suggested that the best way to lose 30 pounds is to first bulk up and gain another 20, you´d tell them to get lost. If that doesn´t sound right, is it any different to spend $3,500 in order to save money?
There is no feeling quite like being mortgage free, but you cannot buy your way to that goal. The only way to get there is by adjusting your spending and by paying more towards your mortgage, more often. Do not fall for these high pressure sales tactics, information you do not understand, or the line that this cannot be explained on the phone. Trust your intuition and the warning sirens in your brain when you are being told that you do not need to change your lifestyle and don´t need any extra income in order to pay off your mortgage in maybe one-third of the time.
You can only reduce your balance with money that´s left over after all your other bills are paid. Besides, for right now, the focus should be on the 10 or 20 percent rates of your car loans and/or credit cards. When they are paid off, you´ll have all the money in the world to apply to your mortgage!
Many people look for an easy way out of trouble, bad eating habits, or our financial situation. There are no pills to make someone skinny, and hope alone is the worst recipe for financial success, which is exactly what this program targets. Sorry, spending $3,500 makes you go broke and some salesperson very rich. There are no shortcuts to becoming debt free. It takes spending less, saving more, having a budget that lets you stay on track and paying more money, paying more often. And it´s so worth it!
However, high pressure marketing, preying on uninformed customers and our desire to want to become debt free create the perfect combination for marketing something called a $3,500 to $5,000 Money Merge Account (MMA). Most often, they are described as "that special software that lets you pay off your mortgage way faster through a line of credit."
If only that were true. Repeat after me: "If it is to be it´s up to me." Becoming debt free will not happen through some software and to keep doing what you´ve been doing, because you´ll keep getting the same results. If you keep doing what you´ve been doing, these MMAs just have you $3,500 or so further in the hole!
MMAs are designed to take every extra dollar in your account and apply this full amount to the balance of your loan in order to reduce your interest. To accomplish that, you will need to set up a line of credit where your entire paycheck is deposited and immediately goes onto your loan balance. That sounds great if you only deposited your pay and that were the end! But the first thing all of us do after we deposit our check is take out money to pay bills and to live on.
Here is an example using $1,500 each pay period:
On the 1st of the month, the whole $1,500 is deposited to the line of credit and thus onto the mortgage balance.
On the same day, the regular mortgage payment comes out of the account, we take out money for groceries, life, utilities, the phone bill and whatever else. The next day or two days, tops – what´s left? Maybe $100?
The magic savings: 1 day of $1,500, or 25 cents of interest and 49 cents a month for the extra $100 that´s actually left.
The middle of the month, another $1,500 is deposited. Once again, however, groceries, gas, money to live on, credit card payments, car payments, insurance and whatever else comes out within a day or two. The $1,500 has, again saved 25 cents of interest and if another $100 is left after everything else is paid, there´s another 24 cents of interest saved for the last two weeks of the month.
The final score: $1.23 of interest savings. At that rate, you have to know you will never even come close to recovering the $3,500 cost of this software!
At the end of the day, only the money you are NOT spending "sticks" in your account and can go to work on your loan balance. If that amount is the $200 in our example – send it in with your next payment. You´ll accomplish much the same thing!
If your income is higher, or your payments are less, you´ll have more money left over at the end of the month and can still send it to your lender as a principal reduction.
But if you run out of money before you run out of month – you´re now about to make things worse – much worse. This magical account is a line of credit that you can also tap into beyond the deposits from your income. That makes it very likely you´re not only out the $3,500, but potentially going further into debt! This is not a question of spending money to make money. It is spending money to waste money. In fact, the nationally syndicated Clark Howard gives it a "rip-off alert," and rightly so.
Another line of credit and possibly more debt is the last thing anyone needs, and it does not solve financial problems or make magic payments on your mortgage loan. If someone suggested that the best way to lose 30 pounds is to first bulk up and gain another 20, you´d tell them to get lost. If that doesn´t sound right, is it any different to spend $3,500 in order to save money?
There is no feeling quite like being mortgage free, but you cannot buy your way to that goal. The only way to get there is by adjusting your spending and by paying more towards your mortgage, more often. Do not fall for these high pressure sales tactics, information you do not understand, or the line that this cannot be explained on the phone. Trust your intuition and the warning sirens in your brain when you are being told that you do not need to change your lifestyle and don´t need any extra income in order to pay off your mortgage in maybe one-third of the time.
You can only reduce your balance with money that´s left over after all your other bills are paid. Besides, for right now, the focus should be on the 10 or 20 percent rates of your car loans and/or credit cards. When they are paid off, you´ll have all the money in the world to apply to your mortgage!
Many people look for an easy way out of trouble, bad eating habits, or our financial situation. There are no pills to make someone skinny, and hope alone is the worst recipe for financial success, which is exactly what this program targets. Sorry, spending $3,500 makes you go broke and some salesperson very rich. There are no shortcuts to becoming debt free. It takes spending less, saving more, having a budget that lets you stay on track and paying more money, paying more often. And it´s so worth it!