Paying off Debt Slowly

[EconoMutt]

Is there anyone that thinks paying off debt slowly in the economy is a good idea?
We have debt and plan to pay it off over a five year period.
I've been listening to the callers on the DR show. People are selling their cars, houses, and anything that has value. They get to yell "I'M DEBT FREE" but literally have nothing. I picture these people standing out in a snow covered field wearing nothing but their underwear and a pair of socks.
I wonder what they think when they wake up the next day? Yea, I'm debt free, but this sucks. :-)
OK, you DR fans, I've got my asbestos underwear on. Let it rip. :-)

[disneysteve]

I think it depends on your personal situation, job stability, state of your savings and EF, etc.

Personally, we are accelerating payment of our only debt, our mortgage, but I have a stable job and more than adequate savings. If my job was shaky or I didn't have a good EF and other savings, I wouldn't be prepaying debt.

[creditcardfree]

You are making quite a few assumptions that after they pay off all their debt they have nothing. Those callers don't sell EVERYTHING. Some may still have retirement accounts that were established before DR.

I don't think there is one right way to do anything. In this economy, I do think establishing and keeping an EF is most important, especially if your job has any hint of insecurity.

[EconoMutt]

Originally Posted by creditcardfree

You are making quite a few assumptions that after they pay off all their debt they have nothing. Those callers don't sell EVERYTHING. Some may still have retirement accounts that were established before DR.

I don't think there is one right way to do anything. In this economy, I do think establishing and keeping an EF is most important, especially if your job has any hint of insecurity.

I would think having a good cash cushion is better that debt repayment at this time also.

[JoshuaHeckathorn]

I'm prepaying my mortgage as well, but that's only because I'm maxing out retirement savings and feel I have an adequate EF. I agree with the others - the answer will vary depending upon each individual situation. But if you don't have a good EF, your focus needs to be there first.

[Fizgig]

I think the important part of the equation is whether you can afford them anyway. Many people just bought too much house, or a $30k car on a $30k salary, and it would be impossible for them to get ahead with those anchors tied around their necks.

In those cases, yes, I think it's wise to sell. I'm not a Ramsey-ite but I like listening to the train wrecks on his podcast, and his rules of thumb on affordability are pretty good IMO.

[maat55]

I'm a big DR fan. I agree fully with DR on paying off debt quickly by selling things like cars and houses to reduce debt quickly. You can own your stuff or it can own you.

I've found that replacing things without debt makes them more enjoyable. Being debtfree is a mindset, once you are there, you don't miss the stuff like you think. Besides, in five years it is likely you will have it back newer without debt.

With that said, one has to be more prepared for financial hardship in this economy over just paying off debt. About ten years ago I found myself with a lot of debt and a slowing business. I had just started listening to DR and desided to sell my house and get out of debt, had I not done that I would have had to depleat a lot of my retirement funds to keep the status quo. I don't regret at all selling to get out of debt.

I wasn't fully on DR's plan until just over two years ago when the R word was begining to surface so to prepare I dropped my golf membership, cut back many expenses and started saving aggressively. I have nice paid for autos and funds to pay cash for my consumer items(including cars). I read cheap books for entertainment. The point is that getting out of debt and living frugal does not mean you do not have things or enjoy life. Getting there fast worked for me.

[maat55]

To add, DR's plan is based on the fact that most people cannot stick to a long drawn out plan. Most people who make the trek from living with debt to debt freedom do it passionately.

I fell for the materialist desires right out of college, too. I financed furniture, a computer, a vehicle, had a $4,000 credit card maxed out within two years of graduating (on top of student loans).

I'm now down to a mortgage, one car payment (the wife's), and my student loans. It's more debt than I would like to have, but the mortgage rate is 5.5% and my student loans are 3.5%, and the car is 7.1%. So, the car is logically the one I'm making some prepayments on, but I'm also investing quite a bit because of the bottom the market hit in 2008. I'm doing better than 7.1% in my taxable brokerage account, which I started in June of 2009 when I got my first decent sized bonus. As long as it outperforms 7.1%, I'll keep investing more than I'm prepaying. Essentially, all that I've invested so far has been on dividend stocks where the dividend yield is high, so I have no motivation to sell the stocks when they're paying me a compounded rate of 10% or more (I've reinvested the dividends). I will stop making monthly savings if it gets to the point that additional investments won't yield the 7.1% and I'll shift to throwing more money at the car payment.

There's no right answer. Some people prefer to get out of their holes sooner, and I can't fault them for that. I didn't overbuy on the house, so I'm now comfortable with the debt load now that all of the credit cards are gone, I max out the 403(b) plan and invest the rest in the taxable account. I probably need to increase the emergency fund past the Dave Ramsey $1,000 mark, but it's too tempting to invest for the dividends right now.

[wnlbutterfly]

I don't think anyone takes it quite to that extreme, but it does make for an interesting visual image!

It is going to take us a little awhile to get out from under our full debt load. We have always bought beater cars until this year, and still it isn't a car that is out in a crazy price range and we are paying more a month to have it paid off quickly. But I think our biggest was credit cards (trying to get ahead of that instead of just treading water), and money that was unaccounted for. That is making a big difference for us.

You just really have to look at your situation and be HONEST about it. I think too many people aren't honest in their role in the debt they have accumulated. And having a vision of where you would like to be. That too is something people don't stop and think about. Our society is about having it ALL right NOW! And that hasn't worked out so well.

[maat55]

Originally Posted by oroborosfx

i think the consumerist culture has gone to far, you shouldn't buy something if you cannot afford to pay it off.

everyone seems to what everything now, but if you saved and then got your car it would mean more to you than if you bought it on credit paid 20% extra.

I think this culture needs to change, but i am a hypocrite as i too have a mortgage and loan to pay off existing debt. I have now paid off all of the debt excpet this loan which exires in 2 years. But i as many no longer purchase things on credit =)

I agree. We have a car fund instead of an payment. Paying cash is easier than people think, and with a lot less risk.

[EconoMutt]

We have a car fund also. It really keeps us from getting carried away when shopping for a vehicle.
It's really nice not having a car payment.

[wincrasher]

Of course the answer is "it depends".

In this economy, your EF cannot be too large. People get caught up in paying down debt just as much as spending too much. There was a poster on here not too long ago that let her kid wear shoes with holes in them because she was paying every nickle to get her debt down.

I'd say you must have balance. If your rates are low, you may be better off sticking to your payment schedule and build more savings. The key is to be in control of your finances. If you have extra money at the end of the month, you have the luxury of deciding how to spend it - either on fun, the future or retire debt.

If you feel you are in a death spiral of high interest debt - like credit cards at 30%, you may be better off paying that down at the sacrifice of increased risk/less of an EF.

In my situation, what debt I do have is all at very low rates, so I'm not really sweating that. I'd rather have the security of cash in the bank. I'm not going to risk my lifestyle and home in order to save 1% in interest.

[PetMom]

I think the op posting is more of an extreme example and not very practical.

My Sis and her Husband went to a DR seminar and that really
helped them turn around their finances.

They more eagerly gave up cable, internet connection, any outings (except the library), no meals out ever, etc. They even made a DR chart and put it on their wall with expenses/savings/debt paid, etc.

DR made it motivating for them.

[EconoMutt]

Originally Posted by PetMom

I think the op posting is more of an extreme example and not very practical.

My Sis and her Husband went to a DR seminar and that really
helped them turn around their finances.

They more eagerly gave up cable, internet connection, any outings (except the library), no meals out ever, etc. They even made a DR chart and put it on their wall with expenses/savings/debt paid, etc.

DR made it motivating for them.

It probably helps when you meet other people that are going through the same financial situation.
DR can be very motivating. I listen to him, but am not as motivated as some of the callers.

[Kris10Leigh]

If I didn't have a husband and children who would disown me, I'd have sold EVERYTHING to get out of debt and I'd have proudly stood out in the cold in my underwear with the weight of the world finally lifted from my shoulders! Being debt free just feels THAT good to me. I like the financial stability of it and the proud feeling I get on those rare occasions you're asked how much CC debt you have.

ZERO.

[tripods68]

We paid off two car payments ($1150 a month) and CC balance ($16K) 4-5 years ago by coming to this site and reading what other people are doing and executing our game plan. We are proud to say, we are DEBT Free today, except the mortgage but it does help, living almost stress free, without worrying so much debt load.

We still use CC card to take advantage of the rebates while paying off the entire balance at the end of the month.

[arlethjones]

hi there! my philosophy in paying off debts is to pay it as fast as i can...that way, i won't prolong my agony..however, your manner of paying off your debt would depend on your financial status as well. so, just keep everything in the right track and make sure that your debts are paid so as not to make the situation worse.

[EEinNJ]

People who are passionate or extreme about debt, whether getting into or out of it, may be missing something. The advantage of debt is leverage, the cost of carrying debt can be a disadvantage.
Should you forego an education or owning a home because you would have to take on debt? Of course not, because the long term benefits exceed the cost of borrowing the money. That could even be true for buying a car- if you could buy a new one with a low interest loan and drive it without the repair costs of an old car, you could come out ahead. Debt is not inherently bad unless you use it unwisely. Paying it off quickly is great, unless you're going to sell your clothes just to save a few bucks in interest!

[Adria.John]

I think managing debt is important. If you take loan then you should know by what means you'll gonna pay it off and in how many years. People who are expert in money circulation makes quite a lot of money in it and they know how to deal with in and outs of debt.

For me debt management works perfectly fine as i have a regular pay and i take payday loans for quick payments and easy handling.