New and Debt Free! Watching the money pile up!

Komelika · #1 (**permalink**) 12-21-2006, 09:52 AM

I found this site last night while browsing and it seems like I may fit in. I found Dave Ramsey back in April about a month before my wife and I found out we were expecting our first. That was a big motivator to get debt free so my wife could be a SAHM. We paid off $34K since April. We were debt free at the end of November and it is true that the money piles up when you have no debt. We already have $2,500 in our FFEF! We should have a complete FFEF by July. It is pretty exciting to know that we'll be contributing to our daughter's college fund by the time she is 6 months old (She is due in January).

Anyway, I know there are tons of ideas out there. Some people advocate debt, some don't. It all depends on your goals and of course your comfort level. I can personally say that DR's plan is solid and worked wonders for us. It is simple, which draws a lot of criticizm, but the beauty of it is that it clearly lists priorities and creates easily achievable goals.

Where ever you are on your financial journey, congratulations, good luck, and hang in there. There is light at the end of the tunnel. See ya on the boards.

Ima saver · #2 (**permalink**) 12-21-2006, 11:08 AM

Glad you have joined us. I am also probably going to be debt free very soon. I only have a land payment and a car payment. I have no credit card debt and my house is free and clear. as soon as we close on the house we have for sale (spec house) I will pay off the land and keep making the payments to my car savings account until I can pay the car off.
Then as you say, the money can pile up!

markio26 · #3 (**permalink**) 12-21-2006, 11:13 AM

welcome to our forum!!!! yes, i think you will fit right in here.....everyone is so nice.......and helpful.......congrats... on becoming debt free... i think that is just wonderful..... keep up the great work!!!!

PRICEPLUS · #4 (**permalink**) 12-21-2006, 12:26 PM

Welcome and congrats on getting out of debt. I recentlyarrived at debt free status. I have to tell youI am not used to being debt free!

I am told that it gets better as you watch the money pile up! I hope so!

I look forward to seeing your input on the forums and the blogs!

smooper · #5 (**permalink**) 12-21-2006, 12:26 PM

Good for you! Hey, no matter how you end up doing it really doesn' matter. I keep saying to myself Just Do It.! Soon to be joining your ranks as "Free of Debt". Lucky you!

Fern · #6 (**permalink**) 12-21-2006, 01:18 PM

The more time you spend here the more all those good frugal tips and habits rub off.

So come back soon!

rduell · #7 (**permalink**) 12-21-2006, 01:22 PM

Welcome and congratulations!

CraigThor · #8 (**permalink**) 12-21-2006, 01:27 PM

Welcome...

vishenda · #9 (**permalink**) 12-21-2006, 01:32 PM

wow, congratulations, smiles for 2007 journey ^__^

Joan.of.the.Arch · #10 (**permalink**) 12-21-2006, 02:04 PM

Hi, it sounds as if you have done very well this year. I don't think simplicity is a reason to criticise anyone's financial advice, unless that simplicity ignores pertinent truths. I don't follow Dave Ramsey, but his idea to pay off debts in order from smallest to largest should probably be expanded upon. There are other things than size of debt to take into consideration.

tinapbeana · #11 (**permalink**) 12-21-2006, 02:20 PM

Quote:

Originally Posted by Joan.of.the.Arch

I don't follow Dave Ramsey, but his idea to pay off debts in order from smallest to largest should probably be expanded upon. There are other things than size of debt to take into consideration.

i can speak to this from experience. calculations have shown the best way to pay off my debt isn't based on the interest rate, monthly payment, or debt amount. it's a weird amalgam of all three, but i will say that for those having a hard time, paying the smallest balances first is probably the easiest way to get started and get motivated by seeing some results.

Komelika · #12 (**permalink**) 12-21-2006, 02:37 PM

Quote:

Originally Posted by Joan.of.the.Arch

Hi, it sounds as if you have done very well this year. I don't think simplicity is a reason to criticise anyone's financial advice, unless that simplicity ignores pertinent truths. I don't follow Dave Ramsey, but his idea to pay off debts in order from smallest to largest should probably be expanded upon. There are other things than size of debt to take into consideration.

Thanks everyone!
I have no doubt that Dave Ramsey's plan would work for anyone as a means to eventually get OOD, but it is definitley not for everyone. It takes a certain mindset, which I didn't have before I read the book. Just knowing what the steps are helps, but understanding the priciples behind the plan is necessary.

The purpose for paying off the debts smallest to largest is that knocking out the smaller debts takes less time, which keeps the momentum going, and each one is a rewarding milestone that is motivating. If you feel the need to tailor the order in which you pay off debt just be careful not to lose motivation if you feel that it takes too long. Other than that the plan still works as long as you don't continue to use credit and create debt.

Another criticizm I hear quite often is that the plan is too conservative to build real wealth. Again it depends on your goals and what you consider "real wealth". I consider being debt free with a paid off house (Baby Step 6) to be much wealthier than I was in April when I was $34K in debt plus my house. Will I build wealth on my income without payments? Yes. Will I be the next Donald Trump? Doubtful. However, I will be in a position to capitalize on opportunities that may not be available to me if I were strapped with debt. The plan has 7 steps. The seveth step is build wealth; how you do that is entirely up to you.

PrincessPerky · #13 (**permalink**) 12-21-2006, 06:53 PM

congrats on both the ebt free and the soon baby

humandraydel · #14 (**permalink**) 12-21-2006, 07:21 PM

Quote:

Originally Posted by tinapbeana

i can speak to this from experience. calculations have shown the best way to pay off my debt isn't based on the interest rate, monthly payment, or debt amount. it's a weird amalgam of all three..

I hate to be anal about this, but "calculations" will NOT show this. Calculations will ALWAYS show that the best way to pay off debt is to tackle the highest interest rate first. I understand Ramsey's theory and it might offer some psychological benefits, but it certainly doesn't offer any financial benefit. Bottom line, you WILL get out of debt faster if you pay the highest interest first. Depending on the amount of high interest debt, you might even get out of debt significantly faster by paying higher interest debt first.

tabbycat31 · #15 (**permalink**) 12-21-2006, 07:33 PM

I think the smallest to largest is also very mental. When you get one small debt paid off, you still stay motivated, where as attacking a 10K high interest CC will most likely take much longer.

It's like dieting. IF you are successful in the beginning, you are more likely to stick to it.

Komelika · #16 (**permalink**) 12-21-2006, 08:22 PM

Quote:

Originally Posted by humandraydel

I hate to be anal about this, but "calculations" will NOT show this. Calculations will ALWAYS show that the best way to pay off debt is to tackle the highest interest rate first. I understand Ramsey's theory and it might offer some psychological benefits, but it certainly doesn't offer any financial benefit. Bottom line, you WILL get out of debt faster if you pay the highest interest first. Depending on the amount of high interest debt, you might even get out of debt significantly faster by paying higher interest debt first.

I disagree. This is only true assuming that you make the minimum payments on all debts, which would take many many years to pay off no matter which is paid off first for most people. DR's plan includes putting more money toward your debt starting with the smallest first. Any additional money is applied directly to principle and is not effected by interest rates.

I calculated many different scenarios when I started the plan because I was concerned about higher interest debts as well. With the extra money that I sent to my bills the time to total debt freedom was the same no matter which order I paid them off. The benefit to paying off the smallest debts first is completely phsycological; it does not speed up or slow down the process. The only thing that changes the time to payoff is how much extra you put toward the principle. Assuming that your balances don't go up, the length of time to payoff doesn't change if you pay off your debts from largest to smallest no matter what your minimum payments are or the amount of interest you pay.

tinapbeana · #17 (**permalink**) 12-21-2006, 08:28 PM

Quote:

Originally Posted by humandraydel

I hate to be anal about this, but "calculations" will NOT show this. Calculations will ALWAYS show that the best way to pay off debt is to tackle the highest interest rate first. I understand Ramsey's theory and it might offer some psychological benefits, but it certainly doesn't offer any financial benefit. Bottom line, you WILL get out of debt faster if you pay the highest interest first. Depending on the amount of high interest debt, you might even get out of debt significantly faster by paying higher interest debt first.

i have run countless calculations myself this past week, and paying my highest interest rate first won't save me the most money. why? my some of my highest interest rates are also my smallest balances, meaning the overall interest they cost me is significantly lower dollar-wise than my lower interest higher balance accounts.

as a previous poster said, i'm also including an extra dollar amount towards debt every month. the first debt i tackle gets my extra $550. when that's gone, the $550 plus the monthly payment on the 1st debt goes towards the 2nd debt. etc.

not that i'm saying paying off one's smallest balance is the most financially beneficial, either. i'm saying it's a ratio of interest rate, balance, and minimum payment amount (because of the snowballing effect).

take my car, house, and a personal loan. house has the highest balance & monthly payment, personal loan has the lowest balance, monthly payment, and interest rate. if i pay them off in order of interest rate (car, house, loan), i'll pay $15,202.48 in interest and it'll take and 66 months. if instead i pay car, loan, house, i'll pay $15,100.21 in interest and it'll only take 65 months, meaning i'm also saving 1 month of a house payment.

if i were just paying the minimum monthly payments and snowballing those, i would still save money paying in this order...

sparkysgirl · #18 (**permalink**) 12-21-2006, 08:33 PM

your post was so inspirational and motivating!! congrats on the new lil one!! and congrats on being debt free!! keep on posting !!

Komelika · #19 (**permalink**) 12-21-2006, 08:44 PM

Quote:

Originally Posted by Komelika

I found this site last night while browsing and it seems like I may fit in. I found Dave Ramsey back in April about a month before my wife and I found out we were expecting our first. That was a big motivator to get debt free so my wife could be a SAHM. We paid off $34K since April. We were debt free at the end of November and it is true that the money piles up when you have no debt. We already have $2,500 in our FFEF! We should have a complete FFEF by July. It is pretty exciting to know that we'll be contributing to our daughter's college fund by the time she is 6 months old (She is due in January).

Anyway, I know there are tons of ideas out there. Some people advocate debt, some don't. It all depends on your goals and of course your comfort level. I can personally say that DR's plan is solid and worked wonders for us. It is simple, which draws a lot of criticizm, but the beauty of it is that it clearly lists priorities and creates easily achievable goals.

Where ever you are on your financial journey, congratulations, good luck, and hang in there. There is light at the end of the tunnel. See ya on the boards.

Oh yeah, I forgot to mention that my wife's last day of work is January 12th, ten days before her due date. She's going to be a SAHM. I'm amazed by the power of goals.

lrjohnson · #20 (**permalink**) 12-21-2006, 08:46 PM

Quote:

Originally Posted by humandraydel

I hate to be anal about this, but

I'm being anal retentive about this subject.....there's anal retentive and there's anal explosive. Why do people who are claiming to be nitpicky leave off that important part of the phrase? I know people almost never mean anal explosive. But jeez.

[ETA: I'm wrong here, don't retain this. It's not explosive, it's expulsive-not a subtle difference. Plus there is a hyphen. I was busted.]