Should you rip off your bank over interest? Scott Pape says no

Barefoot investor Scott Pape examines pink diamond decisions and people’s plans to intentionally rip off their lenders.

The questions came in like a hurricane.

They were all asking about a viral TikTok video by an Aussie who had uncovered an ingenious ‘trick’ to beat the banks and stop paying interest on your home loan.

It quickly amassed 5.1 million views.

(That’s, like, five million more people than watch The Project each night.)

So I clicked on the link.

A bearded dude was sitting in front of an impressive bank of computer screens filled with stock market charts.

He began:

“Hey everyone. I don’t usually do these sorts of things. I’m not a big TikTok user, but what I am good at is finance and understanding how to beat the banks. So I’ve got a couple of people that I’ve given this advice to and everyone’s been telling me that I should make it public. So here we go.”

And then he went on to reveal his big secret:

You can ‘stop’ compound interest accruing on your loan completely by simply … paying your normal repayment plus $1 per day.

Huh?

He continued:

“You will pay a big fat zero in interest, absolutely zero in interest, and you will end up cutting your mortgage from 25 years down to about five … and you can do this with credit cards, you can do this with car loans. Anything that has a variable interest rate, you can do it and you can beat the banks.”

And just in case you missed the point, here it is again:

“Just stop paying interest. Nobody out there needs to be paying interest.”

I know what you’re thinking – surely the banks would HATE this knowledge being leaked, right? I mean they would go broke (or broker, in the case of Credit Suisse).

Don’t worry, he’s onto it:

“So the banks don’t like this. They don’t like this knowledge being out there, and they will try to stop you. They will send you ‘cease and desist’ letters. They will try to stop you from doing it, but at the end of the day, they can’t. If you get a cease and desist letter, once you start doing this $1 a day payment thing to your financial institution, ignore it. What are they going to do? Take you to court and say, ‘Oh, Your Honour, he’s paying too much’. It’ll get laughed out of court. So if you want to beat the banks, beat them by not paying compound interest.”

Scott Pape says he has more work to do teaching financial literacy. Pictured: Supplied

Okay, in our home, ‘stupid’ is a swear word, but I’m going to call it what it is.

This is STUPID!

You cannot stop interest by paying $1 a day on your home loan.

Still, that won’t stop people from trying. There are thousands of comments under the video saying things like: “Not sure if it works, but I’m giving it a go!”

Which reminds me of another viral ‘secret’ for glowing skin:

Some internet gurus suggest you stick coffee beans up your quoit.

(Seriously, Google it … just maybe not at work.)

Does it work?

Erm, no!

Meanwhile, you’re walking around with a short black up your clacker.

Now the fact that this video got five million views tells me three things:

One, people are desperate for solutions to higher interest rates.

Two, just because a video goes viral doesn’t mean it’s true – it just means it’s riding the TikTok (AKA the Chinese babysitter) algorithm.

Finally, I have a hell of a lot more work to do when it comes to financial literacy in this country.

Look, the only way you can pay your home loan down quicker is to get a lower rate, and make extra repayments … preferably more than $1 a day.

And if you’re struggling to make extra repayments, give up the coffee – it’s no good for your skin anyway.

Tread Your Own Path!

Thanks for NOTHING, Barefoot

Hi Scott,

Some years ago I wrote to you asking for advice as we were heavily in debt and finding it a bit overwhelming. Now my husband and I are debt free, our credit score is excellent, we have money in the bank, and we’re paying off a mortgage. How did we do it? Not by listening to your advice, which was to get two jobs each and slug it out paying thousands in interest and principal to banks to pay off our huge credit card debt.

No, instead we simply stopped paying the credit cards back. The amount we owed was $30,000, which increased to $50,000 with interest. Yet I learnt that, as credit cards are unsecured loans, you don’t actually have to pay them back. So we sat and waited for seven years and, lo and behold, we are no longer in debt, and have excellent credit scores. I would love you to share this with your readers – unlikely, I know! But it’s probably a better tip than working your bum off giving billion-dollar profitable companies money they don’t deserve.

Lisa

Hi Lisa,

I’ve been in the trenches as a financial counsellor and I’ve never seen a lender roll over and not try and recover a $30,000 –$50,000 debt (which they have every right to do – because you are legally liable to repay the debt).

Regardless, let’s be clear about what’s going on here:

Someone lent you money in good faith … and you intentionally ripped them off.

You say: “It’s probably a better tip than working your bum off giving billion-dollar profitable companies money they don’t deserve.”

I say: (nothing, my mouth is open, but no words are coming out).

I can’t help but wonder how having this mindset spills over to other areas of your life: like how you fill out your time sheet at work, how you write in financial questions to a newspaper, and what sort of example this sets for your kids.

You may think you’ve got away with this, but you really haven’t.

You went bankrupt seven years ago.

Are pink diamonds a good investment? Scott Pape shares his answer below. Picture: Supplied

Show me your pinky

Hi Scott,

My mum has inherited a pink argyle diamond valued at $36,000. She thinks we should hold on to it because the mine that produced most of the world’s pink diamonds (over 90 per cent) closed down in 2020. So she believes the value will shoot up. According to the FCRF, pink diamonds are growing in value more than any other colour, with values rising 116 per cent between 2010 and 2019. But would it be wiser to sell it and add it to the index fund investment?

Kate

Hi Kate,

Your mother got her research from FCRF … which stands for the Fancy Color Research Foundation.

How fancy!

So, are pink diamonds a good investment?

Honestly, I have no idea.

However, as I’ve said previously, I do know that regular diamonds are not that precious. In fact, they’re more common than dogs’ balls. Seriously, there are said to be 39 billion stones in existence – more than five for every person on earth, according to diamond analyst Martin Rapaport.

Personally, I wouldn’t hold a significant amount of my net worth in a pink diamond. I’d rather own something that puts money in my pocket, like dividend-paying shares, than something that takes money out of my pocket (that is, if your mum holds on to it, she’ll need to insure it).

My advice?

Don’t get between your mum and her pinky. Let her decide.

Oliver, 8, with brother Hugo, 5, at his vegetable garden. Picture: Supplied

Oliver with proud dad Tyson. Picture: Supplied

A great day for Dad

Hey Scott,

After reading your new book Barefoot Kids my nephew had a brainwave: “I can sell veggies from our veggie garden!” He helped pick the veggies and then set up a stall out the front of his house. He was so excited, and even made it his own sign. Then he made $79 in two hours – he was buzzing! He then very calmly and diligently split the money between his Splurge, Save and Give jars. We were all so proud of him. It was fun and inspiring, and got the whole family involved.

Terry

Hi Terry

This is what I dreamt about when I wrote Barefoot Kids:

Instead of Mum and Dad yelling at their kids to do their chores … the children are in charge!

Have a look at Dad in that picture … he looks as proud as punch!

As a parent, it can feel like the wins are few and far between, but this was certainly one.

The kids learn by experience, and the parents bank the memories.

Everyone wins!

Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions

Barefoot Kids: Your Epic Money Adventure! (HarperCollinsPublishers) RRP $32.99

If you have a money question, email [e-mail].

Originally published as Should you rip off your bank over interest? Scott Pape says no