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Old 07-31-2010, 06:32 PM   #41
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They are in trouble because they have behavioral problems. Duh!
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Exactly. AFAIK there isn't a successful alcohol addiction or drug addiction program world that teaches people how drink or smoke dope in moderation and responsibly. Although many people do so. AA and programs like this tell people stop drinking, now and never never ever drink again. When do they drink "they have fallen off the wagon". It seems like an absurd over reaction to tell people know you can't enjoy a drink or two at party, or place a bet, or a smoke joint on a weekend. I have come to realize that folks in the 12 step program know a heck of a lot more about addictive personalities than I do.
Lots of people can borrow money without drowning in debt, but there are plenty of people that simply can't. Dave Ramsey is teaching the 12 step program for credit junkies. In general not a problem for this forum.
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Old 07-31-2010, 07:14 PM   #42
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I know a young couple that has/had over $40,000 in credit card dept. They went to Dave, and now they are 'on the way' to paying off that dept. Weather they make it or not is another thing, but they at least woke up to the fact that it was damaging their marriage.
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Old 08-01-2010, 01:53 AM   #43
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What I like most about Dave is his name.



Seriously though, what I like best is his "accountability" theme. So many people call in wanting to file bankruptcy or not pay for something, and I love to hear him say "well you have the item, you should pay for it."

If you make a mess, you should clean it up. I often try to apply this to other situations in life. Sometimes I think these people who try to climb mountains, then get stuck, then need to be helicoptered out via a rescue team should have to pay for the expenses they cause. THEY need to be more accountable for the expenses they cause too IMO.
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Old 08-01-2010, 07:20 AM   #44
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Exactly. AFAIK there isn't a successful alcohol addiction or drug addiction program world that teaches people how drink or smoke dope in moderation and responsibly.
Hmmm... I'm sensing a business opportunity here. I could probably do this with at least as good a success rate as a 12 step program. Just have to be choosy who I allow in.
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Old 08-01-2010, 08:06 AM   #45
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The financially correct thing to do is pay down the highest interest rate first, yes.
Not always. As I stated before Dave is for beginners and his ideas won't hurt you in the long run, but they might not be the best way of going about things. Take this example: You have two loans one with a $3500 the other $4000. The interest rate are 9.5% and 11% respectively. According to Dave pay the $3500 one off first. According to your statement pay the $4000 off first. Looking at the simple facts of balance and interest rate is very simplistic and can result in paying more in interest. What would happen if after looking at those two items you look at the payment? What if one has an $80 payment while the other has a $350 payment? How does that change the situation? Payment is almost never talked about. I have found only one person who talked about payment amount in relation to paying off debt. It should be included in any analysis of paying off debt. It seems any "always" financial advice about paying off debt falls on its face when the debt is either very similar or very different.
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Old 08-01-2010, 09:54 AM   #46
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One advantage to focusing on the smallest balance first is that, once it's paid off, your total monthly obligation goes down. That can be a good thing if you suddenly get hit with financial hard times and your income gets cut back.

If you have one bill debt that's, say $100/mo and 3% interest and another big debt that's $900/mo and 10% interest, when you concentrate on paying the higher interest bill down first, your obligated to at least $1,000 per month for a very long time. But if you knock out the $100/mo first, then in short time, you get your minimum monthly obligation down to $900/mo.

Personally, I'd still try to knock out the high-interest debts first, but for people walking a very tight line, it might make sense to knock out the small ones first, before tackling the monsters.
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Old 08-01-2010, 09:03 PM   #47
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One advantage to focusing on the smallest balance first is that, once it's paid off, your total monthly obligation goes down. That can be a good thing if you suddenly get hit with financial hard times and your income gets cut back.

If you have one bill debt that's, say $100/mo and 3% interest and another big debt that's $900/mo and 10% interest, when you concentrate on paying the higher interest bill down first, your obligated to at least $1,000 per month for a very long time. But if you knock out the $100/mo first, then in short time, you get your minimum monthly obligation down to $900/mo.

Personally, I'd still try to knock out the high-interest debts first, but for people walking a very tight line, it might make sense to knock out the small ones first, before tackling the monsters.
Don't understand this logic, but you do what's right for you. I'm sure if we had real numbers to work with (balances, time horizons, etc.) we could put this to rest from a numbers standpoint.
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Old 08-02-2010, 10:59 AM   #48
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If you have one bill debt that's, say $100/mo and 3% interest and another big debt that's $900/mo and 10% interest, when you concentrate on paying the higher interest bill down first, your obligated to at least $1,000 per month for a very long time. But if you knock out the $100/mo first, then in short time, you get your minimum monthly obligation down to $900/mo.
But you would be still saving 10% interest instead of 3%.
Psychologically, I can understand, and if its a small amount that
can be payed off in 2-3 months, I guess I understand the feel good
aspect.
If you summed all all your obligations in 1 number, that number would
get smaller faster if you payed off the higher debts first.
TJ
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Old 08-02-2010, 12:25 PM   #49
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Look, folks, it's obvious that there are "left-brained" people and there are "right-brained" people. Some folks are more "sensing and feeling" and others are more "thinking and analyzing".

It's pretty obvious that the reaction among those with a strong math and engineering background is going to be almost universal: "No! Don't EVER pay more than the minimum on anything but the highest rate debt! ANYTHING else is costing you more!"

But what I think should be reiterated is this: Not everyone has that kind of analytical, rational and almost "Vulcan-like" lack of emotion when it comes to this sort of thing. Some people *need* to approach the paydown and snowball differently than others. If the largest debt is also the highest rate, some people may get discouraged without the quick thrill of a payoff. An engineering mind would look more at the bottom line number on a spreadsheet (the combined amount of outstanding debts) and simply want to maximize how much it drops every month. Others may need to see quick "milestones" to stay on the wagon.

The most mathematically correct method may not be the best method for someone if it decreases their chance of sticking with the payoff plan.
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Old 08-02-2010, 12:36 PM   #50
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Yeah, Vulcan my patootie. I get the highest interest first plan and followed it on most of our debts, but on some lower interest loans that got down to $5-10k I paid them off at that point - when you are spending pretty close to exactly what you hope to have come in there is some premium placed on losing a payment and gaining some breathing room. 'Course, I'm talking about loans secured by property, where one runs the risk of foreclosure if payments aren't made. A froo-froo bunch of charge cards? High interest first baby!
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Old 08-02-2010, 12:40 PM   #51
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'Course, I'm talking about loans secured by property, where one runs the risk of foreclosure if payments aren't made. A froo-froo bunch of charge cards? High interest first baby!
Yeah, agreed. I think the list of "moving parts" I referred to earlier in the thread includes this one. All else being relatively close to equal, I would definitely pay down secured debt before unsecured debt because the reprecussions of default are so much greater. In other words, I would likely pay down a secured 6% loan before an unsecured 8% loan. But if it were 6% versus 18%, I'd pay down the 18% even if the 6% were secured. And then I'd kick myself in the head for ever carrying a balance on an 18% loan.
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Old 08-02-2010, 12:54 PM   #52
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First, I agree entirely with ziggy29 on the emotional versus financial aspects.

I am probably one of the few people here who once had high credit card debt. In our case, we paid off over 6 figures of credit card debt. In most instances we did focus on paying off highest interest first. There were a few exceptions mostly related to cash flow and convenience. That is, let's say the high interest method said to pay down a $20,000 balance on a card. But over here there is a card with $500 on it at 1% less interest. I would pay off the $500 card first just to not have to monitor/think about it any more.

But here's the thing. We made plenty of mistakes in our debt payoff that I'm sure meant we didn't always maximize cost. However, over a period of a few years we succeeded in paying it off.

The most important thing is to follow a program that will work for you. If paying highest interest off first works for you then do that. But if paying small balances first works better for you then it is better to do that than not to pay off the debt. If paying accounts alphabetically works for you then do it. (Yes, I even once paid off the credit card coming that I disliked the most simply because I hated dealing with them).

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Originally Posted by teejayevans View Post
But you would be still saving 10% interest instead of 3%.
Psychologically, I can understand, and if its a small amount that
can be payed off in 2-3 months, I guess I understand the feel good
aspect.
If you summed all all your obligations in 1 number, that number would
get smaller faster if you payed off the higher debts first.
TJ
I still think that cash flow can matter. If a particular debt has a very large minimum payment such that it makes it hard to meet your monthly obligations without going further into debt it can make since to prioritize paying off that debt even if it is at somewhat higher interest rate.
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Old 08-02-2010, 01:54 PM   #53
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Don't understand this logic, but you do what's right for you. I'm sure if we had real numbers to work with (balances, time horizons, etc.) we could put this to rest from a numbers standpoint.
Well, that's not what I did, but I'm just saying I can see the logic in it. I got into a financial bind back in the 90's, going through a bad divorce that left me with about $28,000 in credit card debt. I got help from Consumer Credit Counseling Service (CCCS) who negotiated with all my creditors, and put me on a 5 year plan to get it paid off in full.

Now, I might have had one or two small balances that I knocked off right away, regardless of the interest rate, but for the most part, I tackled the cards that had the highest rate first.

I was focusing on the big picture...getting that $28K paid down as fast as possible. And I did it in about 2 1/2 years. However, most people aren't like me...or most of the people on this board! Most people just look short-term, as in what the monthly payment is, without regard for the long term. And those people might be more focused on getting the monthly payment down. Or getting the number of creditors knocked down. I know when I was paying off that debt, I really felt good every time a creditor got knocked off the list, although I still concentrated on the big picture...the overall balance and how long it would take to get it paid off.

I've read that most people who go through those counseling plans end up failing anyway, so I don't always expect people to do the best thing financially. But I'd rather see them do the second best thing financially, if that's something their thought process can comprehend, than do nothing at all and fail.
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Old 08-02-2010, 04:03 PM   #54
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Um, 'scuse me, but I already DID the math (see my point two above).

It's funny you're implying I don't know the math when I already clearly stated the math, viewed alone in a vacuum, doesn't favor the snowball when the lower balance has a lower interest rate.

Lest you forget, I quote myself:



How that is not "doing the math" in your world puzzles me.
Sorry, my comments were not directed at you even though I quoted you. I was simply saying that Dave's method costs people extra money. If someone needs the extra little "atta boy" every time he pays off one of the debts then that person should probably follow Dave's advice. But they should have the sefl awareness to recognize that the little periodic "reward" is costing them money.
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Old 08-02-2010, 04:20 PM   #55
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Not everyone has that kind of analytical, rational and almost "Vulcan-like" lack of emotion when it comes to this sort of thing.
Well, thanks for the compliment...

I think you are making good points and I basically agree with you. People should do what works for them. My objection is to the presentation by Dave that his snowball method is the best way to do things. It's not. It is one of several solutions depending on the objective.

If the objective is to minimize cost then pay off the highest rate debt first.
If the objective is to maximize cash flow then look at the payments and attack the debt that will free up the largest payment soonest.
If the objective is to give yourself periodic rewards then follow DR's method.

I think he should provide a disclaimer every time he tells people to use his snowball that his advice is based on psychology not finance.

I view the need for little rewards as a crutch. I would rather see people taught that they need to be adults and have self discipline. Perhaps that is the Vulcan in me speaking though.
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Old 08-02-2010, 04:32 PM   #56
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Look, folks, it's obvious that there are "left-brained" people and there are "right-brained" people. Some folks are more "sensing and feeling" and others are more "thinking and analyzing".
I am becoming more and more aware of the fact that not everyone is as "right-brained" as I am. Some people are clearly "wrong-brained", ah-hum, I mean "left-brained" (INTJ humor ) when it comes to money. This has become evident when dealing with my MIL's financial situation. At first, I approached the problem from a rational, logical and mathematical stand point, the only approach that made sense to me. But I was getting nowhere and it drove me nuts. My logic was flawless and my mathematical argument was compelling! How could she not get it?

So, I let DW have a crack at it. She started approaching the problem from an emotional point of view (all that touchy feely stuff is absolute torture for me) and suddenly MIL's light bulb came on. All DW had to say was "bag lady"... and everything started to make sense!
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