From their recent press release:

The Company previously announced that it had identified an issue relating to its recording of certain revenue in a non-core business, Promotions.com, that the Company acquired in August 2007. Since that announcement, the Company has been conducting a thorough review of accounting matters related to the business unit and the Company currently is assessing the impact of such matters on the periods since the acquisition. The Company has not yet determined whether it will be required to restate any prior period results. The Company currently does not believe that this matter is likely to result in any significant percentage revision to the aggregate revenue or expenses previously reported by the Company since the acquisition (although the Company cannot give any assurances with respect to this matter as its review is not yet complete), but may result in material revisions, upward or downward, to the net income reported by the Company during any one or more of the periods since the acquisition. This matter does not affect the Company’s previously reported cash, cash equivalents, restricted cash or marketable securities. The Company is endeavoring to complete its review of this matter expeditiously, but cannot presently give assurances as to when the review will be completed.

When the review is completed, the Company will announce a new date and time for its second-and third-quarter 2009 earnings release and investor conference call in a subsequent press release.

Even more troubling is that this bookkeeping mess follows some other disturbing developments at TheStreet.com, which include board members and executives jumping ship at record pace.

The guys over at WallStreetCheatSheet took a couple of well-deserved shots at Cramer… noting that if one follows Cramer’s own advice, they’ll sell the stock. Cramer was none too happy with their blog posting, but who can really blame them for simply pointing out the obvious?

The company is named, along with CEO Harland Stonecipher anbd Chief Marketing Officer Mark Brown. The FTC seeks not only to take away the money Pre-Paid Legal made on these services, but also permanent injunctive relief.

Of course, the company’s press release made no mention of all the work done by Robert FitzPatrick of Pyramid Scheme Alert and Barry Minkow of Fraud Discovery Institute, who both worked vigorously to expose the frauds being perpetrated on consumers by Pre-Paid Legal.

You can read more about the work of both Robert and Barry, which I participated in, on this blog.

Last week, Overstock (NASDAQ:OSTK) announced that it wouldn’t be filing its 10-Q for the third quarter on time. The reason? Patrick Byrne had created another clever (but completely wrong) accounting treatment for another accounting error recently discovered, and the auditors wouldn’t sign off on it.

And this week, Byrne announced that those auditors were just dismissed. How dare they refuse to go along with Byrne’s accounting shenanigans???

This is hilarious. Earlier this year, Overstock fired its auditors, PricewaterhouseCoopers (PwC) and replaced them with Grant Thornton (GT). All was going well until the SEC reopened an investigation into Overstock.com’s questionable accounting practices. There was some back and forth between the SEC and Overstock, and Overstock conferred with both PwC and GT in drafting responses to the SEC. That seemed to go fine until GT decided that there was a problem with these issues:

“… n November 3, 2009 the SEC responded with a follow-up comment letter which requested additional information or clarification regarding, among other matters, a fulfillment partner overpayment (which the Company recovered and recognized $785,000 as income in 2009 as it was received), fulfillment partner under billings (which the Company recovered and recognized $580,000 as income in 2009 as it was received), overbillings by a freight carrier in 2008 (which the Company recognized $301,000 in income in 2009 when the refunds were received) and an adjustment related to redeemable shares of the Company’s common stock (which the Company reclassified $705,000 in 2009 from stockholder’s equity to redeemable common stock).”

Overtsock.com came up with a phony “gain contingency” treatment for these items, and not surprisingly, Grant Thornton disagreed with them. GT has said that the company should restate the December 31, 2008 financial statements to account for these items, rather than using the phony accounting treatment that causes Overstock to report them in 2009.

And so GT was fired by Overstock.com, and the auditors have said that no one should rely on the 3/31/09 or 6/30/09 financial statements. (Those of us who have been following the saga of Overstock.com for any length of time already knew, however, that none of the company’s financial statements can be relied upon.)

And in a move that that is almost never done…. the clowns at Overstock filed their 3rd quarter 10-Q without any auditor review. I’ll be the first to say that auditor reviews are almost worthless. They offer a very low level of assurance to a reader of the financial statements, with the assurance being “almost none.” So the fact that Overstock couldn’t get even that minimal level of approval for their financial statements is a big red flag. As Gary Weiss points out, any time a company is late with filings and doesn’t have proper auditor blessings, you’re looking at a very bad company. (After all, even Bernie Madoff was able to keep up with his SEC filings and get an auditor to bless them!)

But the story gets better as the unreviewed 10-Q was made public with a press release that included comments from nutty CEO Patrick Byrne, explaining the “quandry” they are in. Apparently PwC agrees with Overstock but isn’t the company’s auditing firm. GT doesn’t agree with Overstock, so they’re not allowed to be the company’s auditing firm.

It comes as no surprise that Grant Thornton agrees with Sam Antar’s assessment of the financial issues. That would be the same Sam Antar who has been repeatedly smeared by Overstock and its executives.

The problem here is simple: Overstock.com has repeatedly tried to use cookie jar reserves to manipulate their financial statements. The auditors said NO. And it will be interesting to see what auditing firm in their right mind would ever accept this company as a client. There’s not enough liability insurance in the world to make that a worthwhile business endeavor.

The registrant has been unable to complete its financial statements for the quarter ended September 30, 2009, as it is continuing to analyze the proper accounting treatment for $785,000 the registrant received during the first quarter of 2009 as repayment  under a new agreement with the vendor for amounts the registrant overpaid to the vendor in 2008 and early 2009.  The registrant believes the amount is properly recognizable in the first quarter of 2009, when the cash was received.  However, the registrant is continuing to review the issue, and may ultimately conclude that the amount should have been recognized in 2008.

What? They’re saying they think they’re right in how they’ve treated their refund from a vendor, but they might not be right, so let’s wait and see.

Translated…. Overstock wants to treat the item one way, and their auditors won’t sign off on that because it’s not correct.

This made-up accounting treatment by Overstock is nothing new. Sam Antar has detailed many times over how the company manipulates the accounting rules and makes up their own rules depending on how they want their financial statements to look. The most notable examples of this were the cookie jar reserve they inappropriately set up related to customer refunds and a made-up definition of EBITDA.

Sam Antar notes:

GAAP does not allow for the deferral of material accounting errors into future periods and requires the restatement of previously issued financial reports to correct such errors. Overstock.com is trying to avoid restating its Q4 2008 and Q1 2009 financial reports to correct its overpayment to the vendor.

Simply put, Overstock can’t just make up accounting rules to fit their desires for their financial statements. Sure, the company is guilty of never producing a correct financial statement since 2000. They’ve had restatements, re-restatements, and now are potentially facing re-re-restatements. (Yes, third time might be the charm for Byrne and his team of clowns at Overstock.com.)

But never fear! Byrne says his employees are a bunch of Boy Scouts, so we should pay no attention to their accounting fiasco. This is a kind of a “pay no attention to the man behind the curtain” defense. The company has never been able to produce accurate financial statements, their accounting treatment of many items has been questionable at best (and outright fraud at the worst), and Byrne is too busy chasing around an imaginary Sith Lord to actually run his company.

Thankfully the SEC is again investigating Overstock.com. And just this week, the SEC brought the hammer down on SafeNet Inc. for Regulation G violations. Regulation G is a rule that essentially says companies can’t make up the accounting rules and should be following Generally Accepted Accounting Principles (GAAP).

I can’t wait to see if the SEC will finally bring the hammer down on Overstock too. The circus has gone on long enough.

You see, the marketers of multi-level marketing companies have gotten very savvy. They know that plenty of us have figured out their con game. They now have consumers convinced that theirs is “one of the good ones.”  They’ve convinced consumers that they’ve seen the “bad” MLMs, and that theirs is surely one of the “good” MLMs. (Yet they never tell consumers which ones are the “bad” ones, do they? Why is that?)

Robert writes in a recent newsletter:

In just a few months time, PSA received direct inquiries about more than 100 different MLMs! Consumers appear to know that “some” MLMs are scams, but ernestly believe most are good. Since 60% of all consumers quit MLMs within a year after failing to earn a profit, and more than 90% cycle out in several years time after suffering loss, there is a massive base of negative experience. Yet, consumers are still searching for the “good” MLM that they believe is out there and will become their ticket to wealth or at least a refuge from the Recession.

And in his blog, Robert discusses why  consumers believe MLMs are generally viable despite all the evidence to the contrary. The secret is convincing a potential recruit to look at the “products” the multi-level marketing companies are pushing. Most often these are pills, potions, lotions, fruit juices, and the like.

FitzPatrick writes:

Sadly, few people get the big picture about multi-level marketing schemes. For the most part, MLMs are all the same scheme! From old established schemes like Amway to new startups like the Trump Network, these are the same flim flam in different clothing. One MLM may sell vitamins while another sells weight loss herbs. One sells legal services insurance and another fruit juice. But all of them, in reality, sell the exactly the same product: an endless chain income promise. MLMs are all in the “business opportunity” business, not “pills, potions and lotions.” And all of them sell the same “opportunity”, which is the chance to sell the “opportunity” to others who sell the same opportunity, forever and ever. Amen.

The MLM makes it appear that these products are the focus, so their MLM is different. Different from what? From the real scheme behind MLMs, the endless chain recruitment.

But the truth is that all MLMs are the same. They all rely on continuous recruitment in order to have a chance to earn any significant income. And even still, the vast majority of participants who do recruit new “distributors” still do not make a viable income.

Consumers jump from MLM to MLM looking for the “right one.” They generally think there is some secret they didn’t know or some “right” product that they weren’t pushing. They never realize that over and over, they’re pushing the same bogus “product” in all the multilevel marketing companies… and that “product” is the recruitment into the “opportunity.”

So why don’t consumer protection agencies and non-profit consumer watchdog organizations go after the multi-level marketing industry? According to FitzPatrick:

For many in the media and at the Better Business Bureau, who ought to inform the public about the reality of MLMs, the truth that none of the big names of MLM offers legitimate income opportunities seems to be too “uncomfortable” to accept. If it were true, it would indicate a colossal fraud and a huge failure of regulation. Could this be? Recent experience would seem to open the door to the truth, yet denial still reigns.

And here’s another way the multi-level marketing companies deflect attention from their real purpose of recruiting into infinity… Make up phony reasons why they’re not one of those “bad pyramid schemes.”

Mary Kay Cosmetics is known for touting “we’re dual marketing” (a made-up term to keep focus off their multi-level marketing structure) or saying “our products are sold only twice, once to the distributor and once to the customer” (unlike those bad multi-level companies that have the product sold many times over through various levels).

Many of the MLMs refer to themselves as “direct sales” to hide their recruiting intent. After all, we all know that the companies involved in the “Direct Selling Association*”
Here’s another phony claim to hide the real truth behind multilevel marketing:

Another reason people miss the big picture and keep picking MLM shells with fraud beans underneath: they are told that if the scheme sells a product, it is automatically legitimate! Only schemes that charge large upfront “fees” are scams, they are told, even by the likes of the Better Business Bureau. But, they are assured, if the MLM charges you for products and marketing materials, it’s legit. This is utterly false and dangerously misleading, but many reporters and BBB offices are merely repeating what the MLM industry tells them.

In fact, no MLMs charge large upfront fees any more. They now use a different way to get your money and transfer it to the the schemers at the top of the recruiting chain. Nearly all the money they get now, whether upfront or monthly, comes from the salespeople’s own purchases of “products” (overpriced) and “marketing materials” (worthless). Most consumers pay and pay and pay and don’t ever earn a dime in income but they believe it was all legitimate (even though they lost money) because they purchased products (at absurdly high prices and in order to qualify for commissions they never got), rather than paid “fees.” Here’s the MLM trick: the purchases are the infamous “fees” in disguise!

And the ever-famous argument in favor of MLMs that goes something like this… “If they were doing anything wrong, the government would have shut them down!”

Unfortunately, that’s not the case. Multi-level marketing companies are swindling consumers out of billions of dollars a year, and our law enforcement agencies allow it to continue. Robert explains:

And then there is the sad and outrageous role of our Federal Trade Commission (FTC), which was corrupted by lobbyists and campaign contributions. In 2000, it virtually stopped investigating and prosecuting MLMs. This has given MLMs the aura of legality. MLMs now routinely use the very same defense that fraudster Bernard Madoff employed so successfully for years. When questioned about his scheme, he would say, “How could I be running a scam if the government is not even investigating me and has never prosecuted me?” So, too, MLMs use the lack of law enforcement as part of their false claim of legitimacy and the FTC’s inaction becomes a tool of the fraud.

The scammer have a million reasons why they’re legitimate and why it was the consumer’s fault that she or he made no money. After all, if it is the structure of MLM itself that causes a 99% failure rate, who would ever join? Sure, there are plenty of small business failures each year, but they are at nowhere near the excessive rate that consumers fail in multi-level marketing.

So let’s blame the consumers for the astronomically high failure rates! They didn’t try hard enough. They didn’t really want to make a profit. They quit too soon. They didn’t really know how to market. They didn’t talk to enough people. They didn’t put their full efforts into it.

These excuses for failure sound plausible until you’ve had the experience I’ve had… Hundreds of thousands of people have visited my site, Pink Truth, to talk about their experiences in Mary Kay and other multilevel marketing companies. I see over and over that many put forth great effort and really did want to turn a profit, but the system of MLM itself kept them from achieving that. These are people who have seen great success in their jobs, who would likely be successful at a legitimate busines venture, but who were unsuccessful in MLMs.

Why? The structure of the MLMs guarantees the failure or almost everyone. There is no such thing as a “good” multi-level marketing company.

* Contrary to what the Direct Selling Association would have you believe, they are not a watchdog group for the industry. Their purpose is not for members to have a hand in policing the activities of other members. The organization’s #1 purpose is political lobbying. They exist to ensure that laws protecting consumers from the predatory practices of all the MLMs are never enacted.

And now more news reports are coming out about how phony the stimulus “success” numbers are…

The Southwest Georgia Community Action Council reported that they saved 935 jobs, but they’ve only got 508 employees

The Administration for Children and Families at Health and Human Services claimed it saved 14,506 jobs, except that’s not true. 9,300 of those jobs weren’t “saved.” Rather, those employees got raises and additional benefits.

Even worse is the idiotic explanation why those 9,300 jobs can be considered “saved.” In the words of another blogger:

HHS spokesman Luis Rosero defended the practice of counting raises as jobs saved, explaining that “If I give you a raise, it is going to save a portion of your job.”

Now I have spent the last three hours reading that statement over and over again to try to figure out what that could possibly mean — I even translated it into Latin, which was difficult because it required a subjunctive. But let’s try to parse it a little bit: What is a “portion of a job” and how does a “raise” help to “save” that “portion”. This is one of those inexplicable statements that completely stumps me.

Then there’s the North Chicago school district. They say they saved the jobs of  473 teachers with the $4.7 million tehy got. The problem is that the district only has 290 teachers. And in the same news story, other Illinois school jobs “saved” are outed as complete fiction:

In the official report, Wilmette Public Schools District 39 was credited with 166 jobs saved by stimulus aid. Superintendent Raymond Lechner said the number should be zero.

At Dolton-Riverdale School District 148, stimulus funds were said to have saved the equivalent of 382 full-time teaching jobs — 142 more than the district actually has.

A similar discrepancy was found in data for Kankakee School District 111, where the stimulus report logged the equivalent of 665 full-time jobs saved. “That’s impossible,” a top Kankakee school official said, adding that the entire payroll — full and part time — is 600 workers.

Of course there are also reports of jobs that were saved in other districts that weren’t reported at all, which would mean that the numbers are underreported for them.

The bottom line is that no one is able to give accurate figures on the jobs “saved” with stimulus funds. Which is another reason why our government should not be taking money away from hard working taxpayers and pretending to use it to “save jobs.” They can’t do so efficiently, and they can’t even report their activities accurately. Government, please get out of our lives.

Of course, publishing interesting Tweets is one way to do that, but it’s hard to accumulate Twitter followers simply by providing content. You have to be engaged with other users, and that involves making connections with them and participating in an exchange of ideas.

There are many tools out there for growing your list of Twitter followers, but I’ve only found one that is legitimate. Many are simply selling a version of Twitter spam that doesn’t really accomplish much for you. Genesis Rocket is a completely different type of tool, and the only one that I’ve found to be legitimate and worthy of your time.

The program itself is very simple: It helps you add 1,000 or more new followers to your Twitter account each week. Since I’m a fraud investigator, I decided I wouldn’t promote this tool until I had tried it first and verified its legitimacy. It’s legitimate and it works.

It took me about 15 to 20 minutes per day, 5 days per week to use the program. In the first week I followed the instructions religiously, and added almost 1,000 new followers to my Twitter account. The second week I was more relaxed about the process, and I added about 650 new followers. Those were great results!

How does it work? Each weekday (Monday through Friday) you seek out Twitter followers within the niche you’re hoping to grow your following, and strategically connect with them. In return, you attract attention to your Twitter account and quickly gather new followers.

But it’s not simply about following other on Twitter in the hopes that they’ll follow you back. It’s about strategically finding others on Twitter and participating with them on Twitter. Genesis Rocket offers tools and methods for doing so which have proven to be very successful.

One of the criticisms of the Genesis Rocket program is that it is too simple and suggests tools that many people already know about. Yes, it is simple. And yes, the tools are already out there and being utilized by many. But the value in Genesis Rocket is that I didn’t have to spend hours researching the hundreds of Twitter tools to determine which were effective, and I didn’t have to spend even more hours on a trial-and-error process of determining what works.

The creator of Genesis Rocket has already done all of that work for me, and it is well worth the $97 price tag for the program. Take a look at your job, and ask yourself how much it would cost you to spend 10 or 20 hours of your time researching the tools and trying a bunch of them to see what works? It would probably cost you much more than $97!

Genesis Rocket is not a gimmick. It does exactly what it says it does. It helps you add 1,000 more new followers per week if you follow the program.

What will you do with all those followers? That’s up to you. You might want to sell a product or service directly to those followers. Maybe you’re looking for media exposure or connections to other professionals in your field. You may be interested in just developing a larger following simply for general marketing purposes. No matter what you intend to do with all those followers, the first important step is actually getting them to follow you.

And Genesis Rocket does that in a legitimate way. You will gain influence on Twitter by growing the number of high quality followers you have, and by communicating with those you follow. substantial legitimate traffic for your Twitter account and your online marketing efforts with Genesis Rocket.

In steps Blogging Suits. I have created BloggingSuits to teach accounting and finance professionals how to blog and use social media to their advantage. I’m going to help you with the basics of setting up your blog, effectively writing about things that will get you attention, and turning your time into money.

So many accountants and auditors want to get on the blogging bandwagon but have no idea what they’re doing. And here’s a little secret: The market is practically wide open for your blog.  While there are a zillion blogs alive and kicking, there are very very few written by accountants (we’re talking less than 200 of them in the U.S.) and even fewer that are of a high quality (probably 50 or less).

Claim your spot in the world of accounting and finance blogging! Blogging Suits is completely free. I’m simply sharing what I know with the world. And why should you listen to me? This blog has been responsible for bringing in significant income for my firm Sequence Inc., and I’m going to tell you how I made that happen in the coming months. (And yes, I’ll share some of my numbers with you too!)

The site is brand new. (We don’t even have our official logo yet!) But there is already some great information there, and I’m adding to it every couple of dasys. I’m also looking for guest bloggers. If you’ve got a successful blog or you have done well with social media, consider sharing your knowledge with the world. Of course, you’ll be able to link back to your firm’s site, blog, and social media profiles. It’s a chance for you to share what you know and get more exposure too.

Look at the stimulus numbers in general. In Wisconsin, for example, federal stimulus money was reported to have “saved” 8,284 jobs. That sounds impressive, until you find out that 75% of those jobs were government jobs. (And no, I don’t belive the government report that the jobs saved were “essential.” That’s a smokescreen, plain and simple. There are plenty of tax dollars to fund “essential” services, and the reason governments are “broke” is because they’re using tons of tax money to fund non-essential things that they should not be doing!)

What’s my beef with saving government jobs? We should not be trying to “save” government jobs! Those jobs should only exist to provide the most basic and necessary functions of government. We should want smaller government, not larger. Our government is wasting our money to “save” jobs which are wasteful.

Our federal government is reporting that the stimulus saved 650,000 jobs, yet there is clear evidence that their numbers are phony.

And here’s a specific example of why the government should not engage in stimulus activities to influence the market. They screw it all up and cost taxpayers tons of money.

Take the Cash For Clunkers program. Car buyers got $4,500 from the government to purchase new cars. Essentially, you and I (those who didn’t buy new cars in the program) helped buy our neighbors new cars. (And quite frankly, I’m not interested in kicking in any money to help you buy a new car!)

What did this program add to our economy? NOTHING! Most who had the need and ability to buy new cars would have done so anyway. They may have postponed those purchases a little, but they would have made the purchases without government intervention.

Edmunds.com is reporting that of the 690,000 cars that were purchased under Cash For Clunkers, 565,000 of the buyers would have purchased a car anyway. So what did we accomplish? We got 125,000 people who wouldn’t have bought new cars to do so. (And I’ll suggest that many of those couldn’t afford to do so, and had no business making those purchases anyway!)

So our government spent $3 billion to spur the purchase of 125,000 cars. That’s a cost of $24,000 per car. Our government wasted $3 billion of our money in order to cause the sale of extra cars (above then normal demand) at a cost of $24,000 per sale. No one in their right mind can possibly suggest that this was a worthwhile way to spend tax dollars.

And our government doesn’t want you hearing about this obscene waste of taxpayer money. They’re going to do everything in their power to shut up those who would expose the frauds being perpetrated on the taxpayers. So now the United States Retribution Czar is maligning Edmunds.com for daring to clue in the taxpayers.

The bottom line is that our government should not be propping up certain companies and industries with our tax dollars. (Yes, I‘ve been against all bailout and stimulus-type activities from the very beginning of the financial meltdown!)  It’s a waste of money which belongs to the hard working taxpayers who earned that money (and who have almost no say-so in the creation and administration of these programs).

Our government has never been efficient and effective in administering anything. And they should stay out of our economy and let the free market work for itself.

The evidence which  supports these assertions is based in simple math. A few simple calculations show that MMA loses every time against a basic do-it yourself method. It is common knowledge that the fastest way for a consumer to pay down a group of debts is to pay the minimum monthly payments on each bill, and after paying all required monthly expenses, send any extra cash toward the debt with the highest interest rate.

Here is a more in-depth explanation of that concept. Even Dave Ramsey, the guru of getting rid of debt, admits that anything other than this method will cost you more money. But the reason he promotes a different method (his “debt snowball”) is the psychological effect he says it has on consumers. That’s fine to consider, but everyone has to admit that Dave’s snowball plan is slower than the method above if the consumer applies either method consistently.

But the simple math behind this doesn’t convince UFF Agents like Johnny, who has been part of the discussion here for the last few days. Johnny threw down a challenge for me: He wanted to pit the UFF MMA against my do-it-yourself method and see who comes out ahead. Having done this before, I know that the do-it-yourself method ALWAYS comes out ahead of U1st Financial.

How do I know that? Simple. With UFF the consumer starts out $3,500 behind because of the cost of the software. If the consumer finances the $3,500 cost, their debt is already $3,500 higher at our starting point than with my do-it-yourself method. If the consumer has cash to pay for the $3,500 software, their debt is also $3,500 higher at our starting point than with do-it-yourself because that $3,500 of cash could have been immediately applied to reduce debts had it not been for the UFF pruchase.

Despite my multiple invitations for Johnny to begin our challenge by providing me with MMA’s numbers, he hasn’t participated. I’m pretty sure that it’s because he’s guaranteed to lose and he knows it. But maybe he doesn’t.

He proved today that he can’t handle a simple math problem. In a discussion thread on this site, I mentioned the above method of reducing debt by paying the ones with the highest interest rates first.

Even a person who isn’t good at math and can’t do this calculation on his own certainly could do a Google search for “fastest way to pay down debt” and see that multiple sources agree that the method I’ve cited is mathematically the fastest way.

But UFF agents like Johnny don’t seem to care about the facts. He won’t participate in the challenge that he threw down, and he won’t even bother to research this issue. Here’s what he had to say today (bold added by me):

If you have an intelligent reply I will follow through with challenge and the homework to answer your childish taunts. Your method is not based on facts, it’s based on emotions or opinions. Paying down the debt with the highest interest first is emotional and in fact most often NOT the best way. Typically it is the higher balance with the low interest rate that over time eats away so much interest.

Maybe, you let the debate do the homework for you because you certainly have not done yours. But, surrounding yourself with yes men and not letting a open dialog happen you will never truly grow nor will this tired old blog.

That is most unfortunate for those who can benefit from a service that since you talk crap about will not at least for now. If that is the case and UFF is the best thing since sliced bread you are directly responsible for unfair reporting and another way to look at it might be to say that you may indirectly cause your readers further financial burden. Those who might actually believe you without putting you, your work, your credentials and your credibility to a challenge.

A simple math problem proves Johnny wrong. Let’s use two credit cards as an example. One has a balance of $10,000, an interest rate of 19%, and a minimum monthly payment of $200. The other has a balance of $5,000, an interest rate of 10%, and a minimum monthly payment of $100. The consumer has $600 each month to pay toward these credit cards.

What’s the fastest way to having them both paid off? My way. Pay $100 per month on the card with the $5,000 balance, and pay $500 per month on the card with the $10,000 balance. When the card with the original $10,000 is paid off, apply all money to the other card until it’s paid off.  Using a simple monthly interest calculation, it would take 31 months to pay off both credit cards with total monthly payments of $600 for the entire payoff period. The total interest paid would equal $3,083.76

Using Johnny’s flawed methodology, the payoff would take 32 months, and the total interest paid would equal $3,830.26.  That’s $746 extra wasted on interest if you listen to Johnny.

And did I magically come up with one of the few scenarios in which my numbers win? (After all, Johnny says my way is most often not the best way.) But he’s wrong. My numbers will always win. Pick any numbers, plan a payoff my way or Johnny’s way, and my way wins.

And here’s my spreadsheet to show you all the numbers.

Now the next criticism will be that every consumer doesn’t have the know-how to make the spreadsheet I did. And that’s true. But the spreadsheet isn’t necessary. I only made it to prove that my math is right, and Johnny is wrong. The consumer doesn’t need the spreadsheet to apply the concept. And even if the consumer thought she or he did need such a spreadsheet, there are plenty of templates to be found on the internet for free.

Score:
Tracy – 1
Johnny – 0

I win!