17 Years to Pay Off $2000?
Posted by: kvan in Untagged on
Jan 19, 2009
Over on the Finance Forums, there's been an ongoing discussion about whether John Commutta's "Transforming Debt to Wealth" program is a scam or not. For those who don't know, the Commutta program is one of several promoting the "snowballing payments" method to accelerate debt elimination. The snowballing payments method is what DueMinder uses: commit to a specific dollar amount, higher than your total minimum payments. As a debt gets paid off, you don't reduce your commitment, but rather take the extra amount you were paying to that first debt, and contribute it to another debt.
A minority of posters are convinced the $40 Commutta program is a scam, but the reasons do not seem altogether rational. Most recently, a poster worked through a specific example presented by the Commutta program, and concluded that the program vastly exagerates the savings using the snowballing payment method. The poster writes of the program:
" I bought it intrigued by a claim that they made on their promotion site. They say that using their method they can save $1985 by paying $100 a month instead of $50, on a $2000 debt at 18%, or $2268 by paying $150 monthly.
That is plainly untrue. All they save is $700 (or $950 in the case of $150 payments) which clearly is what the additional payment would yield at 18% until the debt is repaid (plain math)."
The poster made one important misinterpretation of the way credit card companies operate. Most people just pay the minimum due, which starts at $50 in this example, but is reduced over time as the balance is reduced. I explained the problem as follows:
After a few months, the minimum is no longer $50. It drops to $49, then later to $48, and so on, drastically stretching out the payment plan. September of 2026 is when this card would be paid off, if you started this month and always paid the minimum. That's over 17 years to pay off a $2000 debt! In their example, the minimum payment is 2.5% of the balance for any given month ($50 / $2000), and I've further assumed a minimum payment of $10 (in other words, if 2.5% of the balance is less than $10, pay $10 anyway). Total payments in this scenario is $4484, compared to $2364 with the constant $100 payment. You would save significantly if you paid a constant $50 per month as well - total would be $3048. But unfortunately, most people read their statement each month, and pay the minimum as suggested by the friendly card company.
It is precisely this minimum payment calculation trick, coupled with people's propensity to only pay the minimum, that is the "engine" keeping these card companies rich and the typical consumer in debt for a lifetime.
Interested in seeing proof of the 17 year payoff? DueMinder is designed to show a payment schedule based on a constant committment. But, you can fool it into showing a complete schedule of minimum payments, simply by setting the committment to $0. To see this schedule in DueMinder, follow these steps:
- Create a new plan, setting the commitment to $0.
- Create an account, setting the balance to $2,000, payment to $50, percent payment to 2.5%, interest to 18%, and minimum to $10.
- Click the Schedule button to see a complete, month by month payment schedule.
On the payment schedule, you will see the monthly payments start at $50, and gradually trickle down to $10, the minimum, until the debt is paid off in September, 2026. You can experiment with the plan, changing the committment to $50, then $100, to see the drastic change in payoff dates. Committing to $100 a month results in a payoff by January, 2011 with a savings of over $2,000. That's 2 years versus 17 years. Its hard to make a stronger case showing the power of accelerating payments, versus keeping the credit card issues rolling in your money.
The full payment schedule as generated by DueMinder is shown below. If you place your mouse pointer over the link-like items, you will see how much of the payment is the interest fee.
Month  | Balance | TestCC | To Pay |
|---|
| 1/2009 | $2,000.00 | $2,000.00 | $50.00 |
| 2/2009 | $1,979.95 | $1,979.95 | $50.00 |
| 3/2009 | $1,959.59 | $1,959.59 | $49.00 |
| 4/2009 | $1,939.94 | $1,939.94 | $49.00 |
| 5/2009 | $1,919.98 | $1,919.98 | $48.00 |
| 6/2009 | $1,900.73 | $1,900.73 | $48.00 |
| 7/2009 | $1,881.19 | $1,881.19 | $48.00 |
| 8/2009 | $1,861.34 | $1,861.34 | $47.00 |
| 9/2009 | $1,842.21 | $1,842.21 | $47.00 |
| 10/2009 | $1,822.78 | $1,822.78 | $46.00 |
| 11/2009 | $1,804.07 | $1,804.07 | $46.00 |
| 12/2009 | $1,785.07 | $1,785.07 | $45.00 |
| 1/2010 | $1,766.80 | $1,766.80 | $45.00 |
| 2/2010 | $1,748.24 | $1,748.24 | $44.00 |
| 3/2010 | $1,730.42 | $1,730.42 | $44.00 |
| 4/2010 | $1,712.32 | $1,712.32 | $43.00 |
| 5/2010 | $1,694.96 | $1,694.96 | $43.00 |
| 6/2010 | $1,677.33 | $1,677.33 | $42.00 |
| 7/2010 | $1,660.45 | $1,660.45 | $42.00 |
| 8/2010 | $1,643.31 | $1,643.31 | $42.00 |
| 9/2010 | $1,625.90 | $1,625.90 | $41.00 |
| 10/2010 | $1,609.24 | $1,609.24 | $41.00 |
| 11/2010 | $1,592.33 | $1,592.33 | $40.00 |
| 12/2010 | $1,576.17 | $1,576.17 | $40.00 |
| 1/2011 | $1,559.76 | $1,559.76 | $39.00 |
| 2/2011 | $1,544.12 | $1,544.12 | $39.00 |
| 3/2011 | $1,528.24 | $1,528.24 | $39.00 |
| 4/2011 | $1,512.11 | $1,512.11 | $38.00 |
| 5/2011 | $1,496.75 | $1,496.75 | $38.00 |
| 6/2011 | $1,481.16 | $1,481.16 | $38.00 |
| 7/2011 | $1,465.32 | $1,465.32 | $37.00 |
| 8/2011 | $1,450.26 | $1,450.26 | $37.00 |
| 9/2011 | $1,434.97 | $1,434.97 | $36.00 |
| 10/2011 | $1,420.45 | $1,420.45 | $36.00 |
| 11/2011 | $1,405.72 | $1,405.72 | $36.00 |
| 12/2011 | $1,390.75 | $1,390.75 | $35.00 |
| 1/2012 | $1,376.58 | $1,376.58 | $35.00 |
| 2/2012 | $1,362.18 | $1,362.18 | $35.00 |
| 3/2012 | $1,347.57 | $1,347.57 | $34.00 |
| 4/2012 | $1,333.74 | $1,333.74 | $34.00 |
| 5/2012 | $1,319.70 | $1,319.70 | $33.00 |
| 6/2012 | $1,306.47 | $1,306.47 | $33.00 |
| 7/2012 | $1,293.03 | $1,293.03 | $33.00 |
| 8/2012 | $1,279.38 | $1,279.38 | $32.00 |
| 9/2012 | $1,266.54 | $1,266.54 | $32.00 |
| 10/2012 | $1,253.50 | $1,253.50 | $32.00 |
| 11/2012 | $1,240.26 | $1,240.26 | $32.00 |
| 12/2012 | $1,226.82 | $1,226.82 | $31.00 |
| 1/2013 | $1,214.18 | $1,214.18 | $31.00 |
| 2/2013 | $1,201.35 | $1,201.35 | $31.00 |
| 3/2013 | $1,188.33 | $1,188.33 | $30.00 |
| 4/2013 | $1,176.12 | $1,176.12 | $30.00 |
| 5/2013 | $1,163.72 | $1,163.72 | $30.00 |
| 6/2013 | $1,151.14 | $1,151.14 | $29.00 |
| 7/2013 | $1,139.37 | $1,139.37 | $29.00 |
| 8/2013 | $1,127.43 | $1,127.43 | $29.00 |
| 9/2013 | $1,115.30 | $1,115.30 | $28.00 |
| 10/2013 | $1,104.00 | $1,104.00 | $28.00 |
| 11/2013 | $1,092.52 | $1,092.52 | $28.00 |
| 12/2013 | $1,080.87 | $1,080.87 | $28.00 |
| 1/2014 | $1,069.04 | $1,069.04 | $27.00 |
| 2/2014 | $1,058.05 | $1,058.05 | $27.00 |
| 3/2014 | $1,046.88 | $1,046.88 | $27.00 |
| 4/2014 | $1,035.55 | $1,035.55 | $26.00 |
| 5/2014 | $1,025.05 | $1,025.05 | $26.00 |
| 6/2014 | $1,014.40 | $1,014.40 | $26.00 |
| 7/2014 | $1,003.58 | $1,003.58 | $26.00 |
| 8/2014 | $992.59 | $992.59 | $25.00 |
| 9/2014 | $982.45 | $982.45 | $25.00 |
| 10/2014 | $972.16 | $972.16 | $25.00 |
| 11/2014 | $961.71 | $961.71 | $25.00 |
| 12/2014 | $951.09 | $951.09 | $24.00 |
| 1/2015 | $941.33 | $941.33 | $24.00 |
| 2/2015 | $931.42 | $931.42 | $24.00 |
| 3/2015 | $921.36 | $921.36 | $24.00 |
| 4/2015 | $911.14 | $911.14 | $23.00 |
| 5/2015 | $901.78 | $901.78 | $23.00 |
| 6/2015 | $892.28 | $892.28 | $23.00 |
| 7/2015 | $882.63 | $882.63 | $23.00 |
| 8/2015 | $872.83 | $872.83 | $22.00 |
| 9/2015 | $863.90 | $863.90 | $22.00 |
| 10/2015 | $854.83 | $854.83 | $22.00 |
| 11/2015 | $845.62 | $845.62 | $22.00 |
| 12/2015 | $836.27 | $836.27 | $21.00 |
| 1/2016 | $827.80 | $827.80 | $21.00 |
| 2/2016 | $819.19 | $819.19 | $21.00 |
| 3/2016 | $810.45 | $810.45 | $21.00 |
| 4/2016 | $801.57 | $801.57 | $21.00 |
| 5/2016 | $792.56 | $792.56 | $20.00 |
| 6/2016 | $784.43 | $784.43 | $20.00 |
| 7/2016 | $776.17 | $776.17 | $20.00 |
| 8/2016 | $767.78 | $767.78 | $20.00 |
| 9/2016 | $759.27 | $759.27 | $19.00 |
| 10/2016 | $751.63 | $751.63 | $19.00 |
| 11/2016 | $743.89 | $743.89 | $19.00 |
| 12/2016 | $736.02 | $736.02 | $19.00 |
| 1/2017 | $728.03 | $728.03 | $19.00 |
| 2/2017 | $719.92 | $719.92 | $18.00 |
| 3/2017 | $712.70 | $712.70 | $18.00 |
| 4/2017 | $705.37 | $705.37 | $18.00 |
| 5/2017 | $697.93 | $697.93 | $18.00 |
| 6/2017 | $690.37 | $690.37 | $18.00 |
| 7/2017 | $682.70 | $682.70 | $18.00 |
| 8/2017 | $674.91 | $674.91 | $17.00 |
| 9/2017 | $668.02 | $668.02 | $17.00 |
| 10/2017 | $661.01 | $661.01 | $17.00 |
| 11/2017 | $653.91 | $653.91 | $17.00 |
| 12/2017 | $646.69 | $646.69 | $17.00 |
| 1/2018 | $639.36 | $639.36 | $16.00 |
| 2/2018 | $632.93 | $632.93 | $16.00 |
| 3/2018 | $626.41 | $626.41 | $16.00 |
| 4/2018 | $619.78 | $619.78 | $16.00 |
| 5/2018 | $613.06 | $613.06 | $16.00 |
| 6/2018 | $606.23 | $606.23 | $16.00 |
| 7/2018 | $599.29 | $599.29 | $15.00 |
| 8/2018 | $593.27 | $593.27 | $15.00 |
| 9/2018 | $587.15 | $587.15 | $15.00 |
| 10/2018 | $580.94 | $580.94 | $15.00 |
| 11/2018 | $574.63 | $574.63 | $15.00 |
| 12/2018 | $568.22 | $568.22 | $15.00 |
| 1/2019 | $561.72 | $561.72 | $15.00 |
| 2/2019 | $555.12 | $555.12 | $14.00 |
| 3/2019 | $549.43 | $549.43 | $14.00 |
| 4/2019 | $543.65 | $543.65 | $14.00 |
| 5/2019 | $537.79 | $537.79 | $14.00 |
| 6/2019 | $531.83 | $531.83 | $14.00 |
| 7/2019 | $525.78 | $525.78 | $14.00 |
| 8/2019 | $519.65 | $519.65 | $13.00 |
| 9/2019 | $514.43 | $514.43 | $13.00 |
| 10/2019 | $509.13 | $509.13 | $13.00 |
| 11/2019 | $503.75 | $503.75 | $13.00 |
| 12/2019 | $498.29 | $498.29 | $13.00 |
| 1/2020 | $492.74 | $492.74 | $13.00 |
| 2/2020 | $487.11 | $487.11 | $13.00 |
| 3/2020 | $481.39 | $481.39 | $13.00 |
| 4/2020 | $475.58 | $475.58 | $12.00 |
| 5/2020 | $470.70 | $470.70 | $12.00 |
| 6/2020 | $465.75 | $465.75 | $12.00 |
| 7/2020 | $460.72 | $460.72 | $12.00 |
| 8/2020 | $455.61 | $455.61 | $12.00 |
| 9/2020 | $450.42 | $450.42 | $12.00 |
| 10/2020 | $445.16 | $445.16 | $12.00 |
| 11/2020 | $439.81 | $439.81 | $11.00 |
| 12/2020 | $435.39 | $435.39 | $11.00 |
| 1/2021 | $430.91 | $430.91 | $11.00 |
| 2/2021 | $426.36 | $426.36 | $11.00 |
| 3/2021 | $421.74 | $421.74 | $11.00 |
| 4/2021 | $417.05 | $417.05 | $11.00 |
| 5/2021 | $412.29 | $412.29 | $11.00 |
| 6/2021 | $407.45 | $407.45 | $11.00 |
| 7/2021 | $402.54 | $402.54 | $11.00 |
| 8/2021 | $397.55 | $397.55 | $10.00 |
| 9/2021 | $393.51 | $393.51 | $10.00 |
| 10/2021 | $389.40 | $389.40 | $10.00 |
| 11/2021 | $385.22 | $385.22 | $10.00 |
| 12/2021 | $380.99 | $380.99 | $10.00 |
| 1/2022 | $376.68 | $376.68 | $10.00 |
| 2/2022 | $372.32 | $372.32 | $10.00 |
| 3/2022 | $367.88 | $367.88 | $10.00 |
| 4/2022 | $363.38 | $363.38 | $10.00 |
| 5/2022 | $358.80 | $358.80 | $10.00 |
| 6/2022 | $354.16 | $354.16 | $10.00 |
| 7/2022 | $349.45 | $349.45 | $10.00 |
| 8/2022 | $344.66 | $344.66 | $10.00 |
| 9/2022 | $339.80 | $339.80 | $10.00 |
| 10/2022 | $334.87 | $334.87 | $10.00 |
| 11/2022 | $329.86 | $329.86 | $10.00 |
| 12/2022 | $324.77 | $324.77 | $10.00 |
| 1/2023 | $319.60 | $319.60 | $10.00 |
| 2/2023 | $314.36 | $314.36 | $10.00 |
| 3/2023 | $309.03 | $309.03 | $10.00 |
| 4/2023 | $303.63 | $303.63 | $10.00 |
| 5/2023 | $298.14 | $298.14 | $10.00 |
| 6/2023 | $292.56 | $292.56 | $10.00 |
| 7/2023 | $286.90 | $286.90 | $10.00 |
| 8/2023 | $281.15 | $281.15 | $10.00 |
| 9/2023 | $275.32 | $275.32 | $10.00 |
| 10/2023 | $269.39 | $269.39 | $10.00 |
| 11/2023 | $263.38 | $263.38 | $10.00 |
| 12/2023 | $257.27 | $257.27 | $10.00 |
| 1/2024 | $251.07 | $251.07 | $10.00 |
| 2/2024 | $244.77 | $244.77 | $10.00 |
| 3/2024 | $238.38 | $238.38 | $10.00 |
| 4/2024 | $231.88 | $231.88 | $10.00 |
| 5/2024 | $225.29 | $225.29 | $10.00 |
| 6/2024 | $218.60 | $218.60 | $10.00 |
| 7/2024 | $211.80 | $211.80 | $10.00 |
| 8/2024 | $204.90 | $204.90 | $10.00 |
| 9/2024 | $197.89 | $197.89 | $10.00 |
| 10/2024 | $190.78 | $190.78 | $10.00 |
| 11/2024 | $183.56 | $183.56 | $10.00 |
| 12/2024 | $176.22 | $176.22 | $10.00 |
| 1/2025 | $168.78 | $168.78 | $10.00 |
| 2/2025 | $161.21 | $161.21 | $10.00 |
| 3/2025 | $153.54 | $153.54 | $10.00 |
| 4/2025 | $145.74 | $145.74 | $10.00 |
| 5/2025 | $137.83 | $137.83 | $10.00 |
| 6/2025 | $129.79 | $129.79 | $10.00 |
| 7/2025 | $121.63 | $121.63 | $10.00 |
| 8/2025 | $113.34 | $113.34 | $10.00 |
| 9/2025 | $104.93 | $104.93 | $10.00 |
| 10/2025 | $96.39 | $96.39 | $10.00 |
| 11/2025 | $87.72 | $87.72 | $10.00 |
| 12/2025 | $78.91 | $78.91 | $10.00 |
| 1/2026 | $69.97 | $69.97 | $10.00 |
| 2/2026 | $60.89 | $60.89 | $10.00 |
| 3/2026 | $51.67 | $51.67 | $10.00 |
| 4/2026 | $42.31 | $42.31 | $10.00 |
| 5/2026 | $32.81 | $32.81 | $10.00 |
| 6/2026 | $23.16 | $23.16 | $10.00 |
| 7/2026 | $13.36 | $13.36 | $10.00 |
| 8/2026 | $3.41 | $3.41 | $3.41 |
| 9/2026 | $0.00 | $0.00 | Paid! |
| Total | | | $4,484.41 |
Caution:Calculations estmated based on typical fee structures (e.g. daily compounding). Always check your statements and comply with your specific agreements.