advice about dave ramsey

[LivingAlmostLarge]

Most RE investors would say do that. If you got 4.75% fixed you can buy other properties. If you are leveraging yourself properly with cash flow coming in generously you can do it. It's how they buy properties. Fixed rate mortgage low, high rent.

I don't do it, but I can see how it works out. Not for me, but how do you think successful RE do it? By sitting there saving cash for each rental house? No way. That's not utilizing cash and debt.

[maat55]

DISAGREE- run the numbers for this situation.

A 10% return in 401k will crush the interest rates on the debt, so even though it will take longer to pay off the debt, the reward at end of the tunnel is a much much higher net worth.

I agree consumer debt is bad, but in this case it is far from a problem. $750 extra would pay off 44k in 6-7 years. $500 would pay off in 7-9 years. I carried low interest CC debt while working, and paid off 10k+ in cc debt 3 times over last 11 years, and still have 160k invested (and am debt free). I give the advice that I took myself. Maybe I should write a book too.

OP did not say what 401k contributions/retirement contributions are, but even $250/month invested at 10% return for 7 years is 31k+.

Meaning that if full debt payment is not made, the OP would have 31k in 7 years, (debt would be paid off fully in 7 years with $750 payment), or 44k in 9 years if they pay off the debt with a lower payment and invest.

As time passes, the value of the early deposits will grow exponentially.
If you measure based on net worth, investing early in this case wins (because the interest rates on the debt are low).

If you are trying to measure the satisfaction of paying off debt (which does not have a number associated with it- it is psychogical), then pay off the debt.

So, how is he going to advoid new debt in your plan. He still has to replace some things he has now. Living much below your means and focusing on debt only is the only way to get debtfree with his amount of debt.

Again, debtfree is a lifestyle worth striving for. Your robotic economics, keeps him borrowing money to make new purchases.

[jIM_Ohio]

So, how is he going to advoid new debt in your plan. He still has to replace some things he has now. Living much below your means and focusing on debt only is the only way to get debtfree with his amount of debt.

Again, debtfree is a lifestyle worth striving for. Your robotic economics, keeps him borrowing money to make new purchases.

OP stated they had $750 of money to deal with in addition to minimum CC payments and 401k contributions.

My suggestion was $250 to invest, $500 to debt each month.

That could easily be $250 to repairs and $500 to debt each month, or $250-$250-$250.

[Slug]

I know you were being sarcastic, but... If you can get a HELOC with a fixed rate of 4.75%, that isn't such a bad idea. As long as you have the cash flow to make the payments without touching the investment principal. Yes, the market has been on a rough patch lately, but over time, you should have no trouble at all beating 4.75%. You don't need 10%. You only need about 6%. Remember, the HELOC interest is deductible, so the true cost of that loan is only about 3.6%. If you can earn 6% on your investments and pay 15% capital gains tax, you'd end up ahead of the game.

Or you could take the cash from the 4.75% and loan it at a higher rate on Propser.com and pocket the arbitrage. But, like stocks, Prosper is not riskless.

[Merch]

DR is more about changes your relationship with money. He says 80% behavioral.

With that, he wants you to feel uncomfortable. My bring the EF to $1,000, as you said, makes you not able to sleep.

This leads to his next phase focusing on the debt. He wants you to focus on the some quick hits. Starting with the smallest and snowballing to the largest. After not to long you feel his plan is working and you keep getting actions continue to reinforce that.

Your behavior is now being modified. You are living well below your means and should be making excellent process against your debts.

Mathematically it makes sense to pay down the largest interest rate. In the end, the difference might be a couple of months. In my plan of debt reduction, the difference was insignificant. I think a few hundred dollars on my $49k of debt.

I admit that I am following his ideas, while tweaking them to my own situation. I have not brought my EF to $1k and I still will continue to max my 401(k). I have also paid 23.6k out of 49k since January following his general philosophy. I am looking at having it all paid off my October.

But general, I like his plan. Again it is behavior modification, not strict numbers.

Also the difference between investing and paying off debt is risk. I can guarantee you that if you use that $750 a month to pay off debt that your net worth will rise by the same amount. Guaranteed. Can you do that with investing?

[Gruntina]

For me it depends:

For a few years I was extremely rigorous on paying a very high debt by putting all my savings toward it. I managed to pay off that debt relatively quickly by taking that extreme action.

However.. Now that I am married and working as a team, my husband and I are trying to pay off his credit card debts. I would not advice the same action I did when I single.

Why? When I was single, I did not have a house or mortgage I need to maintain and protect. I am afraid if we used up all our savings for my husband's credit card and only to find out one of us lost a job and have no EF for the mortgage payment and lose the house. (We are not in dire situation but it’s a general example that I think is reasonable)

If you do not have worries like that, I would be more aggressive with paying off the debts taking advantage of it. I also like having a plan that is not so quick so we can "train" ourselves the lifestyle of living below our means and when the credit cards are paid off, you don't go splurge happy with the extra cash.

[geojen]

I appreciate everyone's opinions and comments--it was all good advice. DH and I have talked it over, and came to this compromise. We will not drain the EF, but leave it as is. The 750 dollars for debt will be used as follows:

The balances on the furniture and home depot cards will be paid for in June with the bonus (yea!) I just found out I am getting from work.

500 towards the car loan--will be paid for in 12 months, after which we will snowball to the next car loan. By my calculations (correct me if I am wrong) we will be completely debt free in 3 years and 3 months. This does not take into account the raise I am expecting in May, as well as the bonuses I sporadically get at work. The raise and bonuses will be put towards debt as well.

the other 250 will be used to pay cash for repairs to the house. We should be able to do what we want to the house by taking it slow and doing one thing at time this way.

While not as quickly as DR would probably advise, I guess I don't think paying off 44,000 dollars in debt in 3 years is all that shabby. Maybe I am wrong

[Snave]

I noticed that 8K is from the grandparents and you stated that it was at 0%, which means they just loaned you the cash. Did you ever have a conversation about when you would pay that back? I know it is 0%, but that is one of the ones that I would attack first. It is one thing to owe money to a bank, but having that over your head at every family get-together would probabaly not be good. They may not say they care when you pay it back, but it would certainly be common courtesy. As well, I wouldn't want to alienate someone that might be able to bail me out if I was ever in a pinch.

[geojen]

I noticed that 8K is from the grandparents and you stated that it was at 0%, which means they just loaned you the cash. Did you ever have a conversation about when you would pay that back? I know it is 0%, but that is one of the ones that I would attack first. It is one thing to owe money to a bank, but having that over your head at every family get-together would probabaly not be good. They may not say they care when you pay it back, but it would certainly be common courtesy. As well, I wouldn't want to alienate someone that might be able to bail me out if I was ever in a pinch.

You are right, we did just borrow that from them to supplement our downpayment for the house. We've brought it up several times that we'd like to structure a payment schedule to pay them back, but they'd rather we work on our house right now! We sent them a 200 dollar check right away when we moved in, to show that we were serious about paying them back, and they sent it back to us!

But you raise a good point, and we will be bringing this up again, maybe in a few months, to start paying them back in a timely manner.

[maat55]

I appreciate everyone's opinions and comments--it was all good advice. DH and I have talked it over, and came to this compromise. We will not drain the EF, but leave it as is. The 750 dollars for debt will be used as follows:

The balances on the furniture and home depot cards will be paid for in June with the bonus (yea!) I just found out I am getting from work.

500 towards the car loan--will be paid for in 12 months, after which we will snowball to the next car loan. By my calculations (correct me if I am wrong) we will be completely debt free in 3 years and 3 months. This does not take into account the raise I am expecting in May, as well as the bonuses I sporadically get at work. The raise and bonuses will be put towards debt as well.

the other 250 will be used to pay cash for repairs to the house. We should be able to do what we want to the house by taking it slow and doing one thing at time this way.

While not as quickly as DR would probably advise, I guess I don't think paying off 44,000 dollars in debt in 3 years is all that shabby. Maybe I am wrong

The important thing is to stay with the plan and not add debt to it. Good luck.

[cptacek]

You are right, we did just borrow that from them to supplement our downpayment for the house. We've brought it up several times that we'd like to structure a payment schedule to pay them back, but they'd rather we work on our house right now! We sent them a 200 dollar check right away when we moved in, to show that we were serious about paying them back, and they sent it back to us!

But you raise a good point, and we will be bringing this up again, maybe in a few months, to start paying them back in a timely manner.

That is really great of your grandparents. They want to help you get started, and the best thing you can do is not squander their generosity (not at all saying you are, but encouraging you to continue to put it to good use). I would also keep offering to pay them back periodically, and let them know how you are doing paying off the other debt, if you are comfortable with that. Just to let them know how much you appreciate it!

[benosayi]

Dave Ramsey has opened my eyes to things that i was doing that were stupid. I had 16,000 in a regular saving account. I had credit card dept of 6,000 at 11% interest. Student loan 9,000. I paid off all of my debts, I have been putting away 4,000 a month in money market, roth, 401 since becoming debt free, except house. i have a son going to college soon and I am not going to pay that off until I pay for that big expense.

[maat55]

Dave Ramsey has opened my eyes to things that i was doing that were stupid. I had 16,000 in a regular saving account. I had credit card dept of 6,000 at 11% interest. Student loan 9,000. I paid off all of my debts, I have been putting away 4,000 a month in money market, roth, 401 since becoming debt free, except house. i have a son going to college soon and I am not going to pay that off until I pay for that big expense.

Great job!!!! Another DR success story.