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Dave Ramsey people...which to pay first?
Old 05-01-2015, 06:35 PM
  #1

Pay off an $8,000 3% interest car loan
or
pay off $4,600 14% interest credit card bill

the car loan should be finished pay in a year and a half should we keep paying on schedule.


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money
Old 05-01-2015, 06:38 PM
  #2

When we did Dave's way we paid off smallest to largest debt, but we still kept current on all of our loans/bills. We are now debt-free, yep, even the house. It is a pretty sweet feeling and no, we don't make lots of money. I am a teacher (duh) and my hubby works at a hardware store. We just stayed the course!
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Old 05-01-2015, 06:39 PM
  #3

Dave says biggest balance first BUT in your case I think I would continue paying car on schedule and put all your extra into credit card until it is paid off.

ETA: Maybe it is smallest to biggest... IDK, I'm tired.
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debt snowball
Old 05-01-2015, 06:41 PM
  #4

Pay off the smaller debt first, according to Dave. So pay off tje credit card first.
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Dave..
Old 05-01-2015, 06:48 PM
  #5

Dave suggests you pay the SMALLEST debts first. It's called the snowball pay-off system. He doesn't figure the interest rate into deciding which debt to pay off.


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Old 05-01-2015, 07:06 PM
  #6

I don't know about Dave Ramsey, but interest rate SHOULD be figured in according to lots of financial advisor types.....pay highest interest rate loans first or you end up paying even more in the end the longer you hold onto it. Of course, this doesn't mean you don't continue to make the necessary payments on other loans. Just put as much extra money towards the higher rate as possible to get rid of it.
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Credit card first!!
Old 05-01-2015, 07:07 PM
  #7

First, it follows Dave's way. Secondly, look at the difference in interest rate! The lower balance but higher rate is almost triple a month extra out of your pocket just interest. Pay it off and then the higher one will roll the lower payment into it and you'll end up paying it off faster w/less interest charged.

Good luck paying off the debt! That will be so nice for you!

Illini
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Old 05-01-2015, 07:08 PM
  #8

In your case, you can do the Dave snowball AND the highest interest. Everybody will approve.

But you definitely keep paying on schedule with the other loan. Paying off the small one first just means throwing all your extra money at that debt, not equally distributing it among all debts.
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Old 05-01-2015, 08:03 PM
  #9

I agree with Illini teacher and a few others who said to pay the higher interest debt first but to keep current on all your other payments at the same time.

Super! It will be paid down in no time, because when you pay ahead, you are not paying interest, but toward the principal.

One suggestion would be to note "xx monthly payment, apply xx (amount over and above) toward principal only." on your checks in the memo section so they don't try any shenanigans on you.



p.s. what about looking into a zero-interest for six months on transfer balances card? It seems like there should be some cards out there that charge less than 14%, maybe through a credit union or something.

That depends, however, on whether you want to keep the 14% card for long term credit history or other benefits or if closing that account would actually help your credit score / fit in with your plan in the long run.
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Old 05-01-2015, 08:21 PM
  #10

I have never taken a Ramsey course but I would pay off the lower, higher interest bill first!

Nancy


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Dave says
Old 05-01-2015, 10:31 PM
  #11

Dave Ramsey says to pay off the smaller bill first. This way when that bill is paid off, you take the amount of money you were using to pay that smaller bill plus the money you usually pay the other bill,combine the two, and now you are able to make larger payments and pay off the larger bill faster. He does not consider interest rates because he thinks more of the snowball getting bigger and bigger as you pay off another bill and then add those monies on top of the usual payment to begin really paying things off quicker.

I hope that made sense

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Old 05-02-2015, 04:03 AM
  #12

Smallest debt first. De'anna gave a great explanation. Check out Daveramsey.com. You can listen to the show on your computer or use the app Iheart radio. The stories of the people who call in are truly inspiring and will keep you focused on your goal.

We just started following Dave a year ago and paid off our car in 8 months instead of 4 years. It is amazing what one can do when there is a budget and a goal. We would work on paying off the house but we are selling in three years so we are putting everything into retirement now. Thanks to Dave I will be able to retire early and we can live our dream.

I wish I had found him earlier, I would have wasted MUCH LESS money on things that aren't needed.

Tripteach- kudos to you!
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Old 05-02-2015, 04:41 AM
  #13

Always smallest to largest, unless you owe the IRS.
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Old 05-02-2015, 07:41 AM
  #14

The smallest to largest snowball also takes into effect psychological rewards. People who have multiple debts didn't get there by being extremely savvy with money. When you see a debt eradicated, that's a very gratifying feeling, which encourages you to do it again. And since you have Debt 1's payment to add to Debt 2, it goes down a bit faster and you get rewarded again. And so on - like a snowball that picks up speed/size on its way downhill.

While paying off the highest interest one first might often make the most sense on a spreadsheet, the reality is that people do become discouraged and give up throwing extra money at their debts because it doesn't seem to make a difference. If you're highly disciplined, you can figure it on a spreadsheet (assuming you have many debts and need a spreadsheet, it's pretty easy to do with just two) and do what makes sense. But most people who have a lot of consumer debt are not highly disciplined.

But like I said, you can please both financial advisory camps in your situation. Your smaller debt is your higher interst debt.
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