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Posted: 8/27/2009 4:42:11 AM EDT
[#1]
Credit Card debt is never good to have.
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Posted: 8/27/2009 4:42:21 AM EDT
[#2]
whatever you do ... don't act responsibly , that fucks up your credit score.
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Posted: 8/27/2009 4:45:11 AM EDT
[#3]
If your credit cards have a higher interest rate than your savings accounts, it's best to pay them off first. It might be wise to save a few hundred dollars in cash reserves for emergencies depending on your circumstances.
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Posted: 8/27/2009 4:45:19 AM EDT
[#4]
I guess it really depends on how much cash reserve you have. You should try and have a reserve of 3-6 months (leaning to 6months) of your bills and expenses set aside. If you have other cash after that pay off some bills and then you can get back to saving money again.
I have never carried any credit card debt, but will likely incur some in the near future as I will probably be broke by the end of the year. My cash reserve is running out quickly and Ill have to start over once I get things sorted out. IMO credit card debt should not be used as a long term loan. |
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Posted: 8/27/2009 4:45:20 AM EDT
[#5]
make min payments sit on cash - chapter 11 doesnt get your cash back, plus after filing you can have a cc in 3 years.
I usually roll around 8-10k in cc debt to build my credit - which I also keep reserves to pay off in one payment or at least the ability to call and negotiate a payment in full. cash is king |
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Posted: 8/27/2009 4:45:26 AM EDT
[#6]
Quoted: whatever you do ... don't act responsibly , that fucks up your credit score. I'm going to wager that the "credit score" will cease to exist. It's unfair to certain demographics, don't ya know... but most of all, you're going to see the majority become "bad", and that won't fly. |
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Posted: 8/27/2009 4:47:46 AM EDT
[#7]
pay that fucker off!
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Posted: 8/27/2009 4:50:34 AM EDT
[#8]
Yes, and be sure to pay your Citigroup cards...'cause they were responsible and paid off all their bad investments too!!!
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Posted: 8/27/2009 4:50:47 AM EDT
[#9]
Quoted:
Quoted:
whatever you do ... don't act responsibly , that fucks up your credit score. I'm going to wager that the "credit score" will cease to exist. It's unfair to certain demographics, don't ya know... but most of all, you're going to see the majority become "bad", and that won't fly. or there will be bonus points for certain down trodden demographics , I find this wayyyyy more likely . |
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Posted: 8/27/2009 4:51:00 AM EDT
[#10]
Don't you know? ARFCOM doesn't use credit.
It is good to have a "rainy day savings" since you could get laid off tomorrow, but the money isn't working for you if you have large balances an interest piling up on your cards. My wife and I are paying ours off at the cost of some luxuries. Ideally, in a year we will only have her student loans and our house payment. Then I can have all the uppers I can imagine. 
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Posted: 8/27/2009 4:51:42 AM EDT
[#11]
Pay them off.
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Posted: 8/27/2009 4:55:51 AM EDT
[#12]
Some times MONEY is tight and CC are used. Sometimes minimum payments are paid and mouths are fed , and before you know it you have a large CC bill. I have good scores but CC's are killing me!
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Posted: 8/27/2009 4:56:50 AM EDT
[#13]
I would love to have a company negotiate a smaller payoff....anyone do this?
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Posted: 8/27/2009 4:59:04 AM EDT
[#14]
Quoted: I would love to have a company negotiate a smaller payoff....anyone do this? Now you did it. |
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Posted: 8/27/2009 4:59:35 AM EDT
[#15]
As Dave Ramsey would say
Get out of debt the same way you learned to walk, one step at a time. $1,000 to start an Emergency Fund Pay off all debt using the Debt Snowball (pay off debts smallest to largest, using payments from paid off debts on the next bill) 3 to 6 months of expenses in savings Invest 15% of household income into Roth IRAs and pre-tax retirement College funding for children Pay off home early Build wealth and give |
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Posted: 8/27/2009 5:00:15 AM EDT
[#16]
Doc––I ain't exactly Dave Ramsey but here goes: We are paying off our debt. BUT! It's only because I'm still employed and we can build up our cash reserves at the same time. If something happens and my income drops, the credit cards go to the bottom of the list.
The big (well, maybe not so big...) secret is that credit card companies are "unsecured creditors". In the event you don't pay, they have little recourse other than bugging the crap out of you and reporting it to the credit agencies. These days, with credit card companies arbitrarily raising interest rates and lowering available credit––along with people missing payments, I'm not scared of having a bad credit score. IMO, I'd build up your cash reserve to a comfortable level while making minimum payments, THEN start paying down the debt. Good luck. TC |
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Posted: 8/27/2009 5:00:32 AM EDT
[#17]
DID WHAT!?
Quoted:
Quoted:
I would love to have a company negotiate a smaller payoff....anyone do this? Now you did it. |
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Posted: 8/27/2009 5:01:18 AM EDT
[#18]
Thanks...
Quoted:
Doc––I ain't exactly Dave Ramsey but here goes: We are paying off our debt. BUT! It's only because I'm still employed and we can build up our cash reserves at the same time. If something happens and my income drops, the credit cards go to the bottom of the list. The big (well, maybe not so big...) secret is that credit card companies are "unsecured creditors". In the event you don't pay, they have little recourse other than bugging the crap out of you and reporting it to the credit agencies. These days, with credit card companies arbitrarily raising interest rates and lowering available credit––along with people missing payments, I'm not scared of having a bad credit score. IMO, I'd build up your cash reserve to a comfortable level while making minimum payments, THEN start paying down the debt. Good luck. TC |
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Posted: 8/27/2009 5:02:07 AM EDT
[#19]
I can't imagine every carrying any kind of credit card balance from month to month. Unless for some reason you have a "too good to be true" magically low rate locked in with no potential for a re-adjust, there is very little value to carrying credit card debt as a hedge against economic uncertainty. People carrying a balance and paying the typical uber high interest rates need to get their head checked. I mean seriously, slap yourself right now if you are reading this and think that is a good plan.
Also, this should go without saying, but how come you didn't state your interest rate in your original post? This information is extremely relevant to this discussion. |
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Posted: 8/27/2009 5:03:56 AM EDT
[#20]
Get rid of those things!!!
I have no credit cards and my credit score is in the high 700's... |
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Posted: 8/27/2009 5:04:01 AM EDT
[#21]
Quoted:
make min payments sit on cash - chapter 11 doesnt get your cash back, plus after filing you can have a cc in 3 years. I usually roll around 8-10k in cc debt to build my credit - which I also keep reserves to pay off in one payment or at least the ability to call and negotiate a payment in full. cash is king ...except that this line of thought assumes that welching on your debt is acceptable. ...and that bankruptcy is fun... be prepared to have every loan application, along with rental applications and even job applications denied for the next seven years. 'Obama's gonna pay my mortgage...' It's this kind of bs that got us into the financial mess in the first place. You know who eats it when you don't pay off your credit cards? The rest of us, in higher rates and fewer benefits. Bankruptcy is a better system than debter's prison and everyone deserves a second chance now and again, but it wasn't meant for abuse like that. 
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Posted: 8/27/2009 5:06:06 AM EDT
[#22]
Quoted:
Quoted:
I would love to have a company negotiate a smaller payoff....anyone do this? Now you did it. +1 you gonna get raped |
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Posted: 8/27/2009 5:09:07 AM EDT
[#23]
10-4. Thanks.
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Posted: 8/27/2009 5:11:06 AM EDT
[#24]
Quoted: Credit Card debt is never good to have. /thread |
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Posted: 8/27/2009 5:11:51 AM EDT
[#25]
Quoted:
As Dave Ramsey would say Get out of debt the same way you learned to walk, one step at a time. $1,000 to start an Emergency Fund Pay off all debt using the Debt Snowball (pay off debts smallest to largest, using payments from paid off debts on the next bill) 3 to 6 months of expenses in savings Invest 15% of household income into Roth IRAs and pre-tax retirement College funding for children Pay off home early Build wealth and give Oh great Dave Ramsey. Now I know how to do it. I love how people give advice akin to "pay this off, and pay that off" OK...give me the money, and I'll do it... |
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Posted: 8/27/2009 5:14:02 AM EDT
[#26]
Your "credit score" is virtually meaningless.
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Posted: 8/27/2009 5:14:03 AM EDT
[#27]
Quoted:
Get rid of those things!!! I have no credit cards and my credit score is in the high 700's... Having a couple of cards does build your score if you're responsible. A sizeable portion of your credit score is your proportion of debt versus available credit. So if you have $10,000 worth of credit on 2 cards and you don't carry a balance, you've raised your score considerably. It hurts you to have a lot of cards, so don't go opening new accounts, but one or two will help your score. Of course its still possible to have a good score without credit cards, but I got my first (and only) card in college specifically to start building a history. And in spite of those evil card companies and their dirty tricks, I still managed to graduate without any credit card debt! 
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Posted: 8/27/2009 5:14:58 AM EDT
[#28]
Quoted:
Your "credit score" is virtually meaningless. Unless you want a loan... ???? 
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Posted: 8/27/2009 5:15:06 AM EDT
[#29]
Quoted:
Quoted:
As Dave Ramsey would say Get out of debt the same way you learned to walk, one step at a time. $1,000 to start an Emergency Fund Pay off all debt using the Debt Snowball (pay off debts smallest to largest, using payments from paid off debts on the next bill) 3 to 6 months of expenses in savings Invest 15% of household income into Roth IRAs and pre-tax retirement College funding for children Pay off home early Build wealth and give Oh great Dave Ramsey. Now I know how to do it. I love how people give advice akin to "pay this off, and pay that off" OK...give me the money, and I'll do it... He tells you to WORK for it. Follow the advice. 
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Posted: 8/27/2009 5:17:44 AM EDT
[#30]
Quoted: Quoted: As Dave Ramsey would say Get out of debt the same way you learned to walk, one step at a time. $1,000 to start an Emergency Fund Pay off all debt using the Debt Snowball (pay off debts smallest to largest, using payments from paid off debts on the next bill) 3 to 6 months of expenses in savings Invest 15% of household income into Roth IRAs and pre-tax retirement College funding for children Pay off home early Build wealth and give Oh great Dave Ramsey. Now I know how to do it. I love how people give advice akin to "pay this off, and pay that off" OK...give me the money, and I'll do it...  "give me the money"??The whole point of it is that you need to spend less than you earn (even if it means eating ramen every day, no cable tv, no high speed internet etc). |
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Posted: 8/27/2009 5:18:56 AM EDT
[#31]
Pay them off and avoid them like the plague…
Credit is what has fucked up our economy… Credit is not wealth, its debt and debt is BAD! |
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Posted: 8/27/2009 5:20:14 AM EDT
[#32]
Quoted: Quoted: Quoted: whatever you do ... don't act responsibly , that fucks up your credit score. I'm going to wager that the "credit score" will cease to exist. It's unfair to certain demographics, don't ya know... but most of all, you're going to see the majority become "bad", and that won't fly. or there will be bonus points for certain down trodden demographics , I find this wayyyyy more likely . Yeah, could be... but you have to consider a couple things here. You have the down trodden, always. Never changes. But now you have people walking away from mortgages. You have people upside down, and I've heard estimates that 50% of people with a mortgage will be upside down a year from now. I've heard the news report the number is currently about 25% We have 10% unemployment, using THEIR numbers. These people are trying to handle roof and heat costs, not worried about Visa. Real estate ain't done yet. Banks aren't moving forward with many many foreclosures. The credit card issue hasn't really presented itself yet but I'm pretty sure it will... All in all, it ain't the down trodden that are in a different position. Hell in NY they just all got 30% raises and bonus buyin' HDTV cash monies. The normal people who had normal jobs all the way up to those who used to be rollin with Madoff... are finding themselves fucked up. This changes the whole scope of things... you have got to figure 25% have been affected by all this in some way shape or form. Who do you know who still has a job that got a raise this year? Most people I know have taken pay and hour cuts. |
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Posted: 8/27/2009 5:26:13 AM EDT
[#33]
Quoted:
Quoted:
Quoted:
As Dave Ramsey would say Get out of debt the same way you learned to walk, one step at a time. $1,000 to start an Emergency Fund Pay off all debt using the Debt Snowball (pay off debts smallest to largest, using payments from paid off debts on the next bill) 3 to 6 months of expenses in savings Invest 15% of household income into Roth IRAs and pre-tax retirement College funding for children Pay off home early Build wealth and give Oh great Dave Ramsey. Now I know how to do it. I love how people give advice akin to "pay this off, and pay that off" OK...give me the money, and I'll do it... "give me the money"??
The whole point of it is that you need to spend less than you earn (even if it means eating ramen every day, no cable tv, no high speed internet etc). It's easy to tell someone "This is all you have to do" The reality is that doing that which is stated is not at all easy. I find his advice akin to: "The easiest way to become a billionaire is to invest $100 million into some high yield securities, and cash it all out when you hit $1 billion" Thanks for the advice...seriously...now I know the secrets... |
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Posted: 8/27/2009 5:32:38 AM EDT
[#34]
Quoted:
As Dave Ramsey would say Get out of debt the same way you learned to walk, one step at a time. $1,000 to start an Emergency Fund Pay off all debt using the Debt Snowball (pay off debts smallest to largest, using payments from paid off debts on the next bill) 3 to 6 months of expenses in savings Invest 15% of household income into Roth IRAs and pre-tax retirement College funding for children Pay off home early Build wealth and give He's right on alot of things including his general sentiment of saving and fugality, but alot of his advice falls under the category of "simple advice for simple people". The debt snowball concept is one of those. If you just want to talk about mathematically optimal, then the correct order to pay off debts is highest interest and penalties first while cutting discretionary spending to zero until you've got everything down to a manageable level. Low interest debt regardless of size should be paid of last if at all. For instance, if I had $100,000 of debt at a fixed 2% interest rate (I know, that'd be uncommon), I would not pay anything except the minimum obligation because my personal low risk rate of return is higher than 2%. Why pay $1000 of 2% debt off instead of buying $1000 worth of CDs or Bonds at 3%? In addition, cheap debt is an excellent hedge against inflation. When Obamaflation hits, that 2% debt will actually make you money as long as inflation goes higher than 2%. You'll be paying off that debt down the road with cheaper dollars in a sense. Kind of like if you deferred a mortgage from the 60's until the 90's you'd be paying of 60's debt with inflated 90's dollars. I don't know if that does a good enough job of explaining it or not but I tried. |
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Posted: 8/27/2009 5:33:43 AM EDT
[#35]
Quoted: Thanks for the advice...seriously...now I know the secrets... You need money to make money. His advice to get the money... is to pay off the debts, efficiently, and then suddenly you have some money because you're not paying out a bunch of interest every month. |
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Posted: 8/27/2009 5:37:10 AM EDT
[#36]
Quoted:
It's easy to tell someone "This is all you have to do" The reality is that doing that which is stated is not at all easy. Who ever said it was easy? I can assure you HE didn't. He's says the process is SIMPLE, not EASY. There's a huge difference. |
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Posted: 8/27/2009 5:40:26 AM EDT
[#37]
Pay those cards off asap! CC issuers are jacking up rates on many people before the new laws come into play.
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Posted: 8/27/2009 5:42:34 AM EDT
[#38]
Quoted: Quoted: As Dave Ramsey would say Get out of debt the same way you learned to walk, one step at a time. $1,000 to start an Emergency Fund Pay off all debt using the Debt Snowball (pay off debts smallest to largest, using payments from paid off debts on the next bill) 3 to 6 months of expenses in savings Invest 15% of household income into Roth IRAs and pre-tax retirement College funding for children Pay off home early Build wealth and give He's right on alot of things including his general sentiment of saving and fugality, but alot of his advice falls under the category of "simple advice for simple people". The debt snowball concept is one of those. If you just want to talk about mathematically optimal, then the correct order to pay off debts is highest interest and penalties first while cutting discretionary spending to zero until you've got everything down to a manageable level. Low interest debt regardless of size should be paid of last if at all. For instance, if I had $100,000 of debt at a fixed 2% interest rate (I know, that'd be uncommon), I would not pay anything except the minimum obligation because my personal low risk rate of return is higher than 2%. Why pay $1000 of 2% debt off instead of buying $1000 worth of CDs or Bonds at 3%? In addition, cheap debt is an excellent hedge against inflation. When Obamaflation hits, that 2% debt will actually make you money as long as inflation goes higher than 2%. You'll be paying off that debt down the road with cheaper dollars in a sense. Kind of like if you deferred a mortgage from the 60's until the 90's you'd be paying of 60's debt with inflated 90's dollars. I don't know if that does a good enough job of explaining it or not but I tried. I haven't read any of Ramsey's stuff. But, from what I understand. The reason you pay off the smallest to largest, while snowballing the payments, is more for the 'people' factor. Rather than a mathematical one. People like results. You pay off the small loan, quick, you are happy. You keep paying off your loans. Its motivation. |
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Posted: 8/27/2009 5:45:19 AM EDT
[#39]
Quoted: With that attitude, it's no wonder you have money/financial problems.Quoted: As Dave Ramsey would say Get out of debt the same way you learned to walk, one step at a time. $1,000 to start an Emergency Fund Pay off all debt using the Debt Snowball (pay off debts smallest to largest, using payments from paid off debts on the next bill) 3 to 6 months of expenses in savings Invest 15% of household income into Roth IRAs and pre-tax retirement College funding for children Pay off home early Build wealth and give Oh great Dave Ramsey. Now I know how to do it. I love how people give advice akin to "pay this off, and pay that off" OK...give me the money, and I'll do it... |
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Posted: 8/27/2009 5:45:43 AM EDT
[#40]
Quoted:
Quoted:
whatever you do ... don't act responsibly , that fucks up your credit score. I'm going to wager that the "credit score" will cease to exist. It's unfair to certain demographics, don't ya know... but most of all, you're going to see the majority become "bad", and that won't fly. your goal should be a credit score of 0 ! Don't be a slave to the man pay off those CC's ASAP |
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Posted: 8/27/2009 5:46:04 AM EDT
[#41]
Quoted:
As Dave Ramsey would say Get out of debt the same way you learned to walk, one step at a time. $1,000 to start an Emergency Fund Pay off all debt using the Debt Snowball (pay off debts smallest to largest, using payments from paid off debts on the next bill) 3 to 6 months of expenses in savings Invest 15% of household income into Roth IRAs and pre-tax retirement College funding for children Pay off home early Build wealth and give My wife and I are taking that class right now through a local church. It's already helped us immensely. If anyone wants to pay off their debt and stop living paycheck to paycheck, I highly recommend taking one of these courses. To the OP: google "Debt Snowball". Good luck. Merlin |
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Posted: 8/27/2009 5:48:43 AM EDT
[#42]
Quoted:
In todays economy and with too many ?????'s on the financial horizon- is it better to pay off large credit card bills - or sit on the cash for awhile? In today's economy, the government is meddling like I've never seen before (I'm only 23). Just a few months ago, new credit card regulations were passed as law, which I believe had the intent of protecting consumers (or protects idiots from spending more than they should be spending.) For example, adults under 21 can't get credit cards unless if someone co-signs with them. From my understanding, a consequence of this new regulation means credit card companies can't make as much money off financially troubled folk in general by raping them with high interest and fees. The financially troubled people may include, but are not limited to: stupid college kids, people who are financially retarded [or retarded in general] who have no credit history or bad credit history and higher interest rates if they can get a card and even higher rates when they miss a payment. Since credit card companies can't make as much money off of these financially troubled folks due to new regulations, the credit card companies have started to cut credit limits and raise interest rates on those slightly more responsible customers with good or great credit scores who pay their bills on time, which means the "good guys" end up paying more on interest for balances they may carry. ************My Opinions are below, take it however you want*************** My opinion is that carrying a credit card balance WITH INTEREST isn't smart. I've taken advantage of introductory zero interest for 6 or 12 months a few times and never paid a cent of interest and had enough saved in the bank to pay it off if I needed. Whether you're in the finanacially troubled group or the "good guys" group, MY OPINION is that it would be best to pay off your debt ASAP if you're paying interest. I wouldn't completely drain the savings/rainy day funds to do it though. If something shitty happens, you could charge up those cards and be in the same place you're in now, but you could have at least saved some of the money you would've spent on interest payments. |
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Posted: 8/27/2009 6:02:24 AM EDT
[#43]
Quoted:
Quoted:
As Dave Ramsey would say Get out of debt the same way you learned to walk, one step at a time. $1,000 to start an Emergency Fund Pay off all debt using the Debt Snowball (pay off debts smallest to largest, using payments from paid off debts on the next bill) 3 to 6 months of expenses in savings Invest 15% of household income into Roth IRAs and pre-tax retirement College funding for children Pay off home early Build wealth and give My wife and I are taking that class right now through a local church. It's already helped us immensely. If anyone wants to pay off their debt and stop living paycheck to paycheck, I highly recommend taking one of these courses. To the OP: google "Debt Snowball". Good luck. Merlin Excellent advice. 
I will be coordinating a Financial Peace University at our church starting next Sunday evening. It is the best program for getting out of debt that is out there. Just imagine how much extra money you would have is you didn't owe any debt and had no debt payments each month. Anyone can do it. All it takes is hard work. |
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Posted: 8/27/2009 6:03:41 AM EDT
[#44]
The whole idea that debt in and of itself is bad is kinda stupid
Most new countries (including our own) borrow money and continue to do so...same w/ new businesses, etc... Mismanagement of debt is bad, not the debt itself. On a personal level that simply means borrowing more than you can afford to pay back...pretty simple stuff. Don't do that 
Now if someone could tell the current administration that.... And FWIW, I worked myself up from a 590 to over 700 in the last year and half; I made some stupid mistakes when I was younger and decided I didn't want to keep asking my dad to co sign on car loans for me or worry about getting boned on a mortgage. A good credit score IS important for most people. Speed |
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Posted: 8/27/2009 6:06:16 AM EDT
[#45]
Quoted:
It's easy to tell someone "This is all you have to do" The reality is that doing that which is stated is not at all easy. I find his advice akin to: "The easiest way to become a billionaire is to invest $100 million into some high yield securities, and cash it all out when you hit $1 billion" Thanks for the advice...seriously...now I know the secrets... Actually FreeFloater, you have a good point....It is hard work. But just about anything worthwhile is hard to do. Dave does not say "to invest $100 million into some high yield securities, and cash it all out when you hit $1 billion", as that would be silly advice and would help no one. What he does is teach folks how to take "baby steps" to get out of debt and stay out of debt, using the resources that you do have, and getting intense about solving these problems. You ought to check out his program before making wrong and silly comments about his advice. It might actually make good sense to you if you understood it. |
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Posted: 8/27/2009 6:11:05 AM EDT
[#46]
Quoted:
Quoted:
Quoted:
Quoted:
As Dave Ramsey would say Get out of debt the same way you learned to walk, one step at a time. $1,000 to start an Emergency Fund Pay off all debt using the Debt Snowball (pay off debts smallest to largest, using payments from paid off debts on the next bill) 3 to 6 months of expenses in savings Invest 15% of household income into Roth IRAs and pre-tax retirement College funding for children Pay off home early Build wealth and give Oh great Dave Ramsey. Now I know how to do it. I love how people give advice akin to "pay this off, and pay that off" OK...give me the money, and I'll do it... "give me the money"??
The whole point of it is that you need to spend less than you earn (even if it means eating ramen every day, no cable tv, no high speed internet etc). It's easy to tell someone "This is all you have to do" The reality is that doing that which is stated is not at all easy. I find his advice akin to: "The easiest way to become a billionaire is to invest $100 million into some high yield securities, and cash it all out when you hit $1 billion" Thanks for the advice...seriously...now I know the secrets... Well the reason this captain obvious advice gets repeated is because there is a massive percentage of our population who can't grasp this concept. There are people in this thread as we speak who have more CC debt than money in the bank and are STILL considering discretionary purchases. I've read posts from these people all the time. I've literally heard people debating if they should spend their next check on a new Glock or a Springfield XD or whether they should spend their bonus on a vacation as opposed to funding their IRA for the year. I have several friends who don't have a dime in the bank yet still have cable, internet, iphones, ect. They live check to check and have no problem spending on all the credit they can get. I've met very few people with high CC debt that were truly doing everything they could and still couldn't make ends meet. The vast majority are people who buy crap they don't need and can't hang onto money to save their life. You know these people, and they are the reason why this common sense has to get repeated. |
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Posted: 8/27/2009 6:17:32 AM EDT
[#47]
Pay off your cards to the extent that you can maintain a reasonable reserve of cash.
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Posted: 8/27/2009 6:18:12 AM EDT
[#48]
Quoted:
Quoted:
Quoted:
As Dave Ramsey would say Get out of debt the same way you learned to walk, one step at a time. $1,000 to start an Emergency Fund Pay off all debt using the Debt Snowball (pay off debts smallest to largest, using payments from paid off debts on the next bill) 3 to 6 months of expenses in savings Invest 15% of household income into Roth IRAs and pre-tax retirement College funding for children Pay off home early Build wealth and give He's right on alot of things including his general sentiment of saving and fugality, but alot of his advice falls under the category of "simple advice for simple people". The debt snowball concept is one of those. If you just want to talk about mathematically optimal, then the correct order to pay off debts is highest interest and penalties first while cutting discretionary spending to zero until you've got everything down to a manageable level. Low interest debt regardless of size should be paid of last if at all. For instance, if I had $100,000 of debt at a fixed 2% interest rate (I know, that'd be uncommon), I would not pay anything except the minimum obligation because my personal low risk rate of return is higher than 2%. Why pay $1000 of 2% debt off instead of buying $1000 worth of CDs or Bonds at 3%? In addition, cheap debt is an excellent hedge against inflation. When Obamaflation hits, that 2% debt will actually make you money as long as inflation goes higher than 2%. You'll be paying off that debt down the road with cheaper dollars in a sense. Kind of like if you deferred a mortgage from the 60's until the 90's you'd be paying of 60's debt with inflated 90's dollars. I don't know if that does a good enough job of explaining it or not but I tried. I haven't read any of Ramsey's stuff. But, from what I understand. The reason you pay off the smallest to largest, while snowballing the payments, is more for the 'people' factor. Rather than a mathematical one. People like results. You pay off the small loan, quick, you are happy. You keep paying off your loans. Its motivation. Like I said though, it's simple advice for simple people. If that's what it takes, then more power to those people. Personally, I don't need motivation or personal satisfaction to get my financial house in order. I'm only concerned with what decisions are going to make me the most money at the end of the day. Paying off high interest/penalty debt first will make you the most money at the end of the day. Ramsey is more like a motivational speaker than he is a financial guru. If you need motivation, then he's your guy. If you need optimal decision making, then let the math do the talking. Don't get me wrong, there is some validity in following a program that works for you even if it isn't the best plan. I'm not trying to poo poo his advice, I'm just saying that his advice isn't the optimal path if you have the discipline to look at things from a strictly non-emotional and strictly rational viewpoint. EDIT: The one part I do like about Ramsey is how he encourages people to have a plan and a budget that you stick to. That's probably the best advice out of anything. That I can get on board with. |
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Posted: 8/27/2009 6:21:37 AM EDT
[#49]
Quoted:
As Dave Ramsey would say Get out of debt the same way you learned to walk, one step at a time. $1,000 to start an Emergency Fund Pay off all debt using the Debt Snowball (pay off debts smallest to largest, using payments from paid off debts on the next bill) 3 to 6 months of expenses in savings Invest 15% of household income into Roth IRAs and pre-tax retirement College funding for children Pay off home early Build wealth and give +1 It takes some changing of your lifestyle, but the rewards are well worth it! Eric 
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Posted: 8/27/2009 6:26:56 AM EDT
[#50]
Quoted:
Like I said though, it's simple advice for simple people. If that's what it takes, then more power to those people. Personally, I don't need motivation or personal satisfaction to get my financial house in order. I'm only concerned with what decisions are going to make me the most money at the end of the day. Paying off high interest/penalty debt first will make you the most money at the end of the day. That's great! You are in control of your finances. I suppose that means that your home is paid for, you have no debt, and you pay cash for your cars. Most people do not live like that. Ramsey is more like a motivational speaker than he is a financial guru. If you need motivation, then he's your guy. If you need optimal decision making, then let the math do the talking. Don't get me wrong, there is some validity in following a program that works for you even if it isn't the best plan. I'm not trying to poo poo his advice, I'm just saying that his advice isn't the optimal path if you have the discipline to look at things from a strictly non-emotional and strictly rational viewpoint.
If people had "discipline", they wouldn't be in debt. But they do not. That's why they have great debt, yet still buy things on credit that they cannot afford. Dave's system works and he has helped hundreds of thousands of people get out of debt. He is a multi-millionaire and people pay money to hear him speak. How about you? |
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