John Cummuta: Transforming Your Debt Into His Wealth

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You have no doubt heard the radio ads (I hear them every day on XM Radio) by John Cummuta, making seemingly impossible claims — you can be completely debt free, including paying off your mortgage, in around five-to-seven years, using just the money you already make. Wow! And they’re backed up by “real” testimonials. Well, as I always say, if it sounds too good to be true, it probably is. (See also: Is MagicJack a Scam?)

First, let's briefly examine the radio ad that’s getting a lot of airplay right now. There are several issues I have with it. Unfortunately, I can’t find a copy of it anywhere online for you to listen to, so I have to do this from the notes I have taken after several listens.

John starts by saying “mortgages should be illegal.” Well, I think most people would agree with that one considering the state of the industry and the vast amount of interest you have to pay. But then he says that, after interest, you will pay $400,000 for a $200,000 mortgage…almost a quarter of a million dollars.

Small point, John. Maybe in your world $200,000 is close to $250,000, but $50,000 is quite the buffer zone. It’s an old advertising tactic, playing with words in this way to make the numbers sound more grandiose. It’s one fifth of a million. This is done deliberately to play off a testimonial later on, when a man says “I’ll be able to pay off my mortgage in two-and-a-half years, on a thirty year mortgage.”

See what John has done there? He sets up the average cost of a mortgage as $200,000, more than doubles it to $450,000 with interest, and then has some guy saying he’ll be paying his mortgage off in less than three years.

This is all designed to make you think you can pay off a huge mortgage in just a few years using the money you already make.

Is It Possible to Pay Off a 30-Year Mortgage in Under Three Years?

Technically, yes. But common sense should override all of this for you. Think, for a second, how on earth is this possible? To pay off the $200,000 in just three years, assuming a low 5% interest rate, would mean a monthly payment of $5,994.18! That’s over $71,000 a year! How many people in America make $71,000 after taxes? And even if you do, the next three years will be pretty tough, as you’ll have no money for, well, anything else. No food. No heat. No cars. Just a huge mortgage payment.

Clearly, unless you’re rich to begin with, you can’t pay off a 30-year, $200,000 mortgage in just three years. This is a clear case of misdirection. The guy in the testimonial doesn’t tell you how much he owes on his mortgage, how long he has to pay it off, or what he earns. It’s a meaningless statistic. I could pay off a 30-year mortgage in one week if I just had one more payment left on it.

So How Does Cummuta's Program Actually Work?

Let’s look at the program more broadly. I've talked to several financial advisors over the last few weeks, and they know all about John Cummuta's scheme. It's not a scam in the true sense of the word. It does work, or rather, it can work if you have the money. But therein lies the rub, as you'll see later on.

The plan is based on the principal idea of debt snowballing. You list all of your debts, smallest to largest, and then commit to paying them off one by one. You pay the minimum on every debt except the smallest, to which you pay as much as you afford. When that's paid off, you add the money you were formerly paying on the smallest debt to the next-smallest debt, and again pay as much as you can afford. This creates an avalanche of money that consumes the debts as each one is paid off. It also gives you great satisfaction as you check each bill off your list.

Now, what I have just told you is the essence of the John Cummuta plan, a plan that costs a lot of money. When I called to inquire, it was five payments of $79.95. It could be more or less now; they may test different price models in different areas at different times. But $400 for advice you can find easily for free on the Internet, well, that seems pricey.

Can You Be Debt Free in Five to Seven Years? Let's Try It Out!

Does it even work? Yes and no. Let's model a debt plan using John Cummuta's method. I will use the median U.S. income of approximately $52,000 (PDF) for this plan.

I will also use the $200,000 mortgage that John himself uses as an example in his ads, and assume you have been paying it off for 10 years at 5% APR. And I will add some average debt, like credit cards and car loans.

• $52,000 after taxes and 401k ($500 pre-tax) is around $3,020/month. We shall round it to $3,100, just to be nice.

Now, the debt figures: 

• Mortgage: $162,000 at 5% ($200,000 after 10 years of payments)
• Credit Cards: $14,000 at 13% — $420 minimum payment (3%)
• Car Loan 1: $18,045 at 6% (This assumes the average $24,800 purchase price, a $415 minimum payment, and 50 months left of the average 72-month loan.)

And as the average family has two cars...

• Car Loan 2: $12,540 at 6% (This assumes a lower purchase price of $20,000, a $391 minimum payment, and 36 months left of 60.) 

These are all based on averages I found. Some people have much more debt, including student loans, home equity loans, and so on. But we'll keep this simple.

OK, Let's Do a Debt Snowball!

Here's one I created using a debt snowball calculator online.

Adding no extra payments and using the figures above, it came to 115 months to pay everything off. That's nine-and-a-half years to be debt free. Not bad, and that's just using the money you earn right now. The combined debt is $2,299.00 per month, leaving your family a tight $801 per month for food, heating, clothing, and all those other household expenses. Something tells me you won't be adding much to your savings plan over the next 10 years.

But Cummuta estimates five-to-seven years.

Well, let's aim for the high end. Seven years.

To get everything paid off in 84 months, you'd have to add an additional $650/month to the debt snowball. That leaves an impossible $151/month to live off.

Want it paid off in five years? Hey, Cummuta can make it happen.

Just add an additional $1,620/month to the original debt snowball, instead of that measly $650.

YES! You'll be debt free in five years! But there is the tiny hurdle of figuring out how to survive on -$849/month. Reading Wise Bread may help, but surviving on negative $849 seems tough for even the most frugal shopper. 

For Most Of Us, Being Debt-Free in Five Years Is Insanely Tough (If It's Even Possible)

These are all just examples done with average U.S. figures. You may have more debt and more income. You may have less debt and less income. But the Cummuta plan seems to be one of extreme sacrfice to the point of having no life at all. If you want to become debt free in five-to-seven years, you'll have no social life, food will be scarce, you won't be able to afford to drive anywhere, no one gets gifts, clothing is out, and you may just lose your sanity, too.

Yes, debt snowballing is a good idea. I think it's a good way to pay off debt, if you do it right and set reasonable goals. But you don't need to pay John Cummuta hundreds (or tens of thousands) of dollars to figure it out. And please, don't set yourself a goal like five years unless you have some major income left over each month that you're stashing in a Swiss bank account.

Be careful everyone. Do your research on John Cummuta and other debt programs before you hand over your precious money to anyone. These debt elimination plans seem to be good for one person and one person only — the one selling them to you.