Mathematically, you are correct.  However, if people who need this kind of help were capable of doing the mathematically correct thing, they wouldn't be in the situation they are in.  Most of personal finance is simple behavior modification.  Positive reinforcement goes a long way to making sure someone sticks with a difficult program and that's what the debt snowball is.  By quickly paying off the smallest debt, they get a small sense of satisfaction and they have more money each month to pay off the next largest debt.  It might not be perfect from a arithmetic perspective, but from a behavior modification perspective, it's much more effective.

Edit: Think of paying off debt like losing weight.  People who set goals like 'lose 50 pounds in 10 months' are more likely to stumble, get discouraged and quit than people with more moderate goals like 'lose 10 pounds in 2 months'.

The similarities between personal finance and weight loss abound. It's all about self control and sticking to a plan that is sustainable. My weight loss success is actually what motivated me to get my finances under control. Between the 2 I'm feeling like a much better person.  I call it the Atkins/Ramsey plan.

Make sure before you pay off your cards that you call up and make sure your account isn't up for "review" or hasn't already been canceled.



I just had this happen, I rode out my last semester of school on credit cards, and as a result I ran up the balances. Although I never missed any payments, When I started working full time I paid off my two lower balance cards completely, only to find out that the companies had put my account up for review and canceled the account right after I paid them all off.



So that leaves me with roughly $2000 less in options for just-in-case shit that comes up because those accounts were cancelled.



So if you need to have some access to credit, Pay your balances down LOW, but leave a balance in them unless you are sure your account isn't going to be closed.

No, that's not what being in control of your finances means.  I can't possibly imagine how you extrapolated that out of what I said.  Debt is a TOOL just like cash.  Being in control of your finances means using debt in a manner that is both sustainable with your income, and optimal as opposed to your opportunity cost of paying in cash.  



So the heck what?  The fact that people pay money to hear him speak makes his advice beyond reproach?  If you don't like my advice, then don't use it.

I'm just making a distinction between Dave's advice on ONE particular topic.  I'm offering a contrary opinion for people in this thread that are interested in adding it to their bank of options for how to approach debt.  I am pointing out that Dave's approach addresses human need for little victories along the way whereas what I'm offering only addresses maximizing value irregardless of any other consideration.  Don't get so emotional about it.

I think of the "all debt is bad"/"debt is a tool" dichotomy like the atomic model you learned in school.  You're taught early on that electrons reside in a specific 'shell' around the atom and don't move.  It's a lie, but it's sufficiently close to the truth for what you're currently learning and experiencing.  Later, you learn how complex electron orbitals really are.   "All debt is bad" is a lie. It is sufficiently close to the truth, however, to be useful when dealing with people who have bad debt, don't know how they go so much of it, and don't know how to get out of it.  Once they've eliminated their bad debt and spend sometime actually learning about debt, then they can graduate to the more correct "debt is a tool" line of thought.  I can understand why you would get upset when people tell others that all debt is bad, but keep in mind that most of the time that lie is directed towards people who are at the stage where they [strike]are[/strike] aren't ready to learn the whole truth.

The best solution is to not get in debt to those fucking sharks in the first place. If I dont have the money, I dont do it, period.

Reminded me of this

There is an upside to people carrying a balance on their credit card.  It means that the CC company can afford to offer cash rebates to the rest of us who never carry a balance.  I pay with my Chase Freedom card whenever possible and somewhere in the range of 3% cashback on everything I buy.  It doesn't cause me to purchase any more than I normally plan to but it does give me an instant discount on everything I already planned on buying anyway.  

I have a CC merchant account for my business and I can tell you from experience paying those fees that there is almost no way they could afford to do that if it weren't for the people who were paying 10%+ interest on their balances that they carry from month to month.  If nobody carried a balance, there is no way they would offer those incentives.  

They probably count on those incentives doing two things:
1)  Getting more people to switch to their card, a percentage of which will end up carrying a balance and paying loan shark rates
2)  Getting the frivolous to spend more on crap they don't need with the notion in their head that they are getting paid to spend.

Does this mean I am gaming the system?

Totally!!!

The only intellectual objection I have to using credit/debit cards is that thier use charges the vendor 3%.  That cost gets passed on to everyone, regardless of how they pay.

I use both credit and debit cards.  More credit, because there is some level of leverage that I can have through the CC company.  However, their use increases prices for everyone.

Brilliant. Honestly. Like the most perfect analogy ever.

That's crazy.  That much debt must be running you $200-300 every month.  

Average of $250/mo, you're paying $3000 year to RENT around 8-10k cash.  If you don't do that, you'll own it free and clear in 3 years.

Great analogy.  It really is very similar - people who windup being 50 pounds or more over weight have been eating too much for a long time.  It takes significant change in your habits to lose weight.  Many people lose a few pounds, flutter, and see it as being 'impossible' to lose weight and then give it up.  Same with debt.  It seems so large of a task, they may take a few chips at it, don't see real progress then decide it isn't worth trying anymore.

So many people repeating that they just can't live without credit simply aren't getting it.  Look at Old_Painless' posts, he has many good ones in this thread.  If you're deep in CC debt, you've been living beyond your means for a long time.  Or maybe not, maybe you borrowed a ton of money and blew it in one weekend on hookers and blow.  
Getting out isn't going to be overnight either.  You have to change your spending habits.  It takes time.  But you'll find that you'll grow accustomed to your new habits, and it gets easier.  Then, you'll get to some point that you like to be at, and then you can loosen the belt a little bit - say a bit more a month for toys.  You'll find you have more money to spend because you're not paying the interest you were paying before, and the money you have is earning interest.

Credit is merely a buffer of your income.  Sooner or later, you're going to hit the limit.  You can either hit the limit with a bunch of debt, or set your limit without it.

You need to sit down, look at your expenses, and prioritize them.

I see the money that some people spend on a regular basis and it amazes me.  My clothes washer died about a year ago, so I looked at washers.  $1200 for a washing machine, not including tax and installation?  WTF?  Does it come with a maid to blow me on weekends too?  Beyond washing my clothes I don't give a fuck what features it has.  I got a used one for $170 - $10 discount for cash.  Cars.  People don't buy it with a $40K price tag in mind, they buy it because it can be leased for 'only' $400-500/month.  For most people, that monthly payment completely erased any thought of how much they're spending.

Sit back and decide how much some things contribute to your enjoyment of life.  A car I sit in and drive to work every day.  Rarely can I ever drive for fun, either there's too much traffic, or the police officers have a different thought about how I should utilize my vehicle.  I decided that a car was simply a transportation need rather than something for enjoyment.  I'm not willing to dedicate a lot of money with lesser expensive alternatives out there.

I did the Debt Rollover.  I was tired of being broke the day after payday.  I was paying off my pickup truck, and paying for my college degree, and paying more that half the rent on the house I was renting (my roommate was in even worse financial trouble than I was), and I was dating a new GF, all at the same time.  Very expensive.  Then my roommate suddenly moved out and left me with a fistful of bills, and he wouldn't pay what he already owed me.  My pay was frozen for two years on my job, and then I got a wage cut on top of that.

I had heard of Dave Ramsey and the Total Money Makeover, and I was so broke that I couldnt even come up with the $$$$$ to buy his book.  Instead, I checked it out from the library.  It convinced me that I hadn't been too bright about my finances, and then I decided to change things.

I had a long talk with the GF.  We agreed that there would be less spending.  It helped that she realized that I was going to do this no matter what she said.

I buckled down at the university, increased my course load, and graduated.  One less expense to worry about.

I started paying off my cards, the one with the least debt first.  Psychologically, it is very helpful to see some results early on.

I went out and got part time jobs, to work in addition to my main job.  After the 2nd part time job, all credit card debt was paid off.  This took a little over a year.

I'm now on my 3rd part time job, and all of the money that I make there goes into a bank acount, for work-related expenses and savings.  Currently, the balance is over $4000.00.

In October, my pickup will ***finally*** be paid off, and I will be 100% debt free.

If I continue the part time job, I will be able to buy a foreclosed home around this time next year.

The Debt Rollover method works, if you will put the effort into it.


Steve

Badass. Starting young and doing it right like that... you'll end up rich even on a "normal" income.

If you believe that the President's plan is to let inflation crush the people into equality, then your best bet is to max out every bit of credit you can get your fingers on buying durable goods that you can use for barter or to sale at a much inflated price in the future.  Stash them somewhere, declare bankruptcy (won't matter if the economy goes to the crapper and you can't get a loan anyway), and in 3 to 7 years you can find out if the gamble paid off.

Where I come from, that's called theft...

Man - o Man!...... This is a heated discussion!

I look at the debt snowball like this.  It might not work mathmatically in all cases ofcourse so YMMV.  It made sense for me.

Regardless of interest rate, if you are in a really bad cash flow position, the debt snowball frees up more of your income faster than just attacking the highest interest debt.

If you pay off the smaller ones first, you lower you total monthly minimum debt outflow much quicker, even though it might be in smaller increments.  

Ideally you would be rolling those payments over, but if you lose your income or something new comes up that you have no control over (tax increases, insurance increases, etc) you have more "disposable income" to take up some slack.

If you were just making payments on a big debt that is a long way from being paid simply due to interest rates, you haven't improved your cashflow enough to account for unexpected (inevitable) increases like that.

Thank you for the complement, but.....I 'm not young.  I just turned 50.  I think the mentioning of being at the university, and a GF, might have given the wrong impression.  I'm just starting things over again.  It is never to late to re-start....

Of course, I would be much better off if I had started doing this at 25.


Steve

haha! Sorry for the assumption. I have a feeling my old balls are gonna have a "re-do" also. Still some work left on the finances before i have the freedom to do it though.

Mine isn't either, not a thief, just idle speculation on my part.  Honest investment in durable goods isn't necessarily a bad idea at this point, however.  Probably the reason durable goods sales have increased 3% recently, people are building inventories before $1 trillion in debt gets dumped on the economy.

My wife and I formally started our budget 9/1, although we really started doing it about two weeks just after we started the class, and we had a little family meeting tonight on it tonight.  She thinks, and I agree, that we've already saved several hundred dollars already.

For example, she called our landline company (Bellsouth/AT&T) and told them we needed to cut our landline to save money.  She discussed it with them and got it down by about 50% (which is what we really wanted).  Did the same with Diretctv, except only about $25 a month there.  So, with two little telephone calls, we started saving $75 a month - easy money.

We're going to pay off two $500-$750 debts this month, eliminating about $125-$150 per month in fees and payments, money that now can go to other debt.

The Dave Ramsey method works.

Good luck.

Merlin

Pay them off as fast as you can safely do it.

Then start your own personal credit card company!

One where you control what the payment and interest terms are (that's power and freedom).

An old fashioned........... "Savings account".

Credit card companies have done a fine job of supplanting themselves in place of savings accounts.

They have profited greatly from the laziness of citizens.  Citizens who were too lazy to build

their own savings account and thereby exclude/deny the vulture credit card companies from their lives.

I "hope" for the "change" that people will realize they can create their own personal credit company.

...A Savings Account.

Got a question about paying off a credit card debt all at once.

Say you run into some money, you owe the credit card $1000; you're not late or anything so you're not getting any debt collector calls or hassles.  Can you call them up and offer them $500 to pay it off all at once, cash money?  If so and they agree, is there any way it could negatively affect your credit some way?  Assume you get it all in writing and pay with a cashier's check, so you have clear documentation.

Anyone know for certain, one way or the other?

Thanks,

Merlin

I like Dave, but that's just retarded advice when 600k people a month are losing their job.  I'd get a 6-month emergency fund first.

If you owe $1000 and the account is current the CC company will want $1000.  If you are behind in payments they might settle for half but only after taking on a lot of extra interest, late fees, etc. and by then you'll be paying a collection agency and not the CC company so your FICO score will end up trashed.

In this economy you should focus on your secured debt.  If you lose your job and can't pay your credit card, too bad for the CC company. If you lose your job and can't make your mortgage payment or car payment, then youv'e got problems.

paid for your home in cash?

 






 

Too hard.  Give it to me.

Sad to say,I don't know anyone right now who doesn't clearly fall within one hard catagory or the other: very well prepared economically or  in the hole.The number of people I know who literally have no savings and up to $20k of CC debt and rising is amazing but I don't know how typical/atypical it is that most are single women?

That's what I figured.  Oh well.  We're just going to pay them off as fast as possible and get rid of them.  I cut up one card last night, it felt pretty good.

Thanks,

Merlin

Which is exactly what Dave Ramsey recommends.

Food, house, utilities, car, gas.  This keeps you in a house with heat and light plus you can go to work.  Then and only then, the CC companies.

removed

removed

You don't need a good credit score to get a good rate.  If you actually are a good investment for the mortgage company, you can request manual underwriting.  They will then go through your pay stubs (ability to pay) and prior history of paying off debts, utilities, etc (aptitude to pay) and determine whether you are a good investment.  It's what mortgage companies did before FICO existed and any mortgage company worth doing business with is capable of doing it today.

I just made a $1,300+ payment to pay off my Discover. Now all my extra cash is going to go into extra mortgage payments.

Is that what you owed or were you able to negotiate a discount on the final bill?

Thanks,

Merlin

Finished paying off some useless crap I bought on a whim.   No more impulse buys.. other than this years SEBR.

Dave will also tell you that it depends on your personal situation right now.  If you are looking at a possible job layoff then pay minimum payments and pile up cash.  If things blow over then use the piled up cash to start the debt snowball and if you lose your job then you can maybe make it for a while.

Yes, you are gaming the system, as do I.   I don't pay interest to banks and credit card companies, while reaping the benefit of their giveaway programs.  For instance I just made $325 by opening a couple of checking accounts with Chase.  To put that into concrete terms, a couple of minutes of paperwork just paid for a Ruger LCP and a few boxes of .380 ACP ammo.

Dave Ramsey would point out that you can't get rich with rebate credit cards and you should use your debit card instead.   That's perfectly good advice for people who lack financial discipline (which, apparently, is a good majority of Americans)  but like his "Debt Snowball", is mathematically incorrect.  I certainly do get RICHER by collecting rebates and gathering free interest by leaving my cash in a interest-bearing bank account until the end of the cycle, when the account is paid in full.

Avoiding credit card interest is no harder than avoiding other bank fees, such as bounced check fees, ATM fees, Overdraft protection fees, Minimum account balance fees, and the lost opportunity of leaving lots of money in low-or-no interest checking accounts.  Avoiding fees and getting free stuff are skills that should be taught in every school, IMHO.

If you are mathematically sophisticated enough to point out the flaws in the Dave Ramsey's Simplistic Consumer advice, then you should feel free to reap the benefits of playing by the Big Boy rules.  The first Big Boy rule being credit card interest not a good deal–– if it's worth borrowing money to buy RIGHT NOW, then there is likely a much cheaper way to borrow the money.    Credit cards are one step above pay-day loan sharks.  For goodness sake, even signature loans at the credit union are cheaper money  than leaving a balance on a typical high interest rate credit card.

Pay off your debts ASAP.



/thread

pay the highest interest rate off first then apply that payment to the next highest. i say interest rate , not balance.

Baby steps. Getting rid of the smallest first lets you see actual progress.  We are talking lowest common denominator to people in general.
What's do you think most people would rather do: pay off a $400 cc at 6% and have it gone, or paying off 10,000 at 20% with minimum payments on the $400? If they see progress, they'll stick with it.
A buddy of mine just did it with a bunch of ccs and said that's the only way he could stick to it.

Like Dave Ramsey says, where are the millions of people you've helped with this advice?

Waiting.....