Personal Debt Question: Dave Ramsey Listeners… what would you do?
by admin ~ October 27th, 2007 . Filed under: Personal Finance .
chrisandniki asked:
We’re currently following Dave Ramsey’s Baby Steps. We’re on Baby Step 2 (getting out of debt).
We’re currently following Dave Ramsey’s Baby Steps. We’re on Baby Step 2 (getting out of debt).
We have a $7000 debt on Car 1, a $6500 on Car 2, and $15,600 on a credit card (at 18%).
I know he says hit the lowest to biggest debts first, but I’m thinking maybe I should (1) do a total or partial balance transfer of that credit card amount to another card for 0%, or (2) put everything toward the credit card and get it paid off first.
If worse came to worse and we were to lose our income, we could sell a car. But that credit card feels like a loaded gun in our pockets. I want it out of our life.
What would you do?
Ammie Carolla
October 30th, 2007 at 10:31 am
Transferring the card won’t eliminate the debt, but it may get you some relief on the rate. You would need to know the transfer fees and the potential interest payments to make an informed decision.
Remember, the cars are collateral loans (meaning there is something to repossess) and the CC is an unsecured loan … so paying off the cars first is a smart move.
You can do it! Keep to the budget, keep income up, and attack the debt as if your future wealth and prosperity depended on it! (because it does)
November 2nd, 2007 at 10:28 am
Dave tells you to do the smallest debt first - regardless of interest rate.
The reason for this is: there is an emotional boost that comes from getting a debt paid off. It’s like losing weight….once you start to see results…you get inspired to keep going. If you don’t see results…you lose interest and give up.
According to Dave, your debts should be paid off in this order: 6500, 7000, 156000.
Lets say you have 6500 to pay debt with. According to Dave, you would apply that 6500 to Car 2. Then your debts would be: 7000, 156000
If you take that 6500 and put it on the credit card, your debts still look like this: 6500, 7000, 9100. Even though it adds to the same money - you still have 3 debts. So you don’t get the emotional boost that comes from getting your debt list reduced by 2.
If selling a car is an option - sell one. Buy a paid for 1000-2000 beater car. You just knocked a whole lot of debt out with one fell swoop.
Then once you get all your debts paid off, you save up for a slightly nicer used car.
The credit card is unsecured debt. It’s the least dangerous of the debt you have. You are just freaking out about it b/c it is so much and the interest rate is so high. I would not go out and get another credit card just so you can transfer this balance. You can also call the credit card company and see if you can get them to lower the interest rate. If you have been a long term customer and your payments have always been on time, you may be able to get them to knock a few % off the rate.
If you stop paying for a car…it gets repo’d. Now you still have to find a way to get to work and the bank will sue you for any balance left on the loan.
If you stop paying on a credit card….what can they do? Make a whole bunch of threats and nasty phone calls. It would be over a year of not paying before they filed a law suit against you. Even then, in order to collect on that judgment…you have to actually own the pot to “P” in. As you work your debt snowball, you could always go back and settled up on the judgment.
If losing your income is a real threat - you need to stop your debt snowball and start to stock pile cash. Continue to make your minimum payments…but start saving every bit you can.
Don’t forget….you’re living like no one else now….so you can live like no one else later!
Good Luck.
November 3rd, 2007 at 4:13 am
I can’t say anything better than Jaclyn & MSAD. I just want you to encourage you to take their advice. They are true blue Ramsey fans and I can tell they live his teachings. I agree with everything both said.
You can do it, Dave isn’t steering you wrong. The one line he says to people trying to justify the highest interest first and use math to explain it: “If you were using math when you took out credit cards, you wouldn’t have debt.” That is why the psychological aspect of paying off lowest first works.
November 4th, 2007 at 8:01 pm
Some of Dave’s advice is good but MUCH of it is generic.
I would get ALL your debt into the lowest interest rates possible. If one has a substancially higher rate, I would pay it first. If they are all close in rate it makes sense to do the smallest first.
There are MANY ways to become debt-free. Dave’s show is good encouragement but don’t let it over-ride your common sense.
But what do I know? I’ve been living within my means since WAY before Dave figured out how to market common sense.