Order of paying debts - stick to snowball?

**shazamboy** · 03-11-2009, 05:25 PM

I am new to the forum and would appreciate some good advice. Have listened to Dave Ramsey often. We have used the enveopes for budgeting for years. Have the following debt:
Mortgage @ 5.789%
Credit Card 0% (this will be my question) $8,000 balance
Car loan @ 5.25% $4900 balance
Daughter's school loan @4% $1700 balance.

The question: The traditional "snow ball" would have us pay off the school and car loans first, however, the credit card at 0% will soon be converted to a 18% rate. We have the money to pay off the card. Should we pay that off before it goes to 18%, and then pay off the school and car loans after? The interest amount for both the school and car loans are very low at this point.

**dutchtulip** · 03-11-2009, 05:51 PM

Personally yes I would pay off the CC first. If you have the money to pay it in full why would you want to start paying interest? Then I would go to the student loan, and then the car loan, and so forth.

When we started paying down our debt, I also take the least amount due bill and work it first, and then second and so forth. I know some say pay the largest or higher interest one first, but personally I feel a sense of accomplishment by doing it the opposite. Just my opinion.

Good Luck to you.

**MomToTwoBoys** · 03-11-2009, 05:53 PM

If the CC's interest rate is due to increase soon, I would pay that off first. After that, I would pay off the car loan -> school loan -> mortgage. You're in a situation to where the majority of your debts are going to be affected payment wise due to interest rate alone.

**thesightofoneself** · 03-11-2009, 06:05 PM

depends. how much do you have in savings? and how much do you spend in a year?

**beks37** · 03-11-2009, 07:02 PM

I'd definitely pay off the credit card first. That way you're not stuck paying 18% interest!

**mateosbaby** · 03-11-2009, 10:59 PM

I'd agree with the others. Pay off the 0% interest first if you have the means to do it completely before the interest goes up. Then I'd do the lowest balance first after that.

**Greebo** · 03-12-2009, 08:37 AM

Dave's snowball is for psychology - he wants people to have a series of quick wins in order to develop the conviction to keep going when the payoffs slow down.

If you are certain you can keep paying off the debt with focus and conviction, then by all means, do the more mathematically sensible thing.

Just remember - it's not necessarily about the math. If we were doing good math here, we wouldn't be in debt to begin with.

**kmonokwe** · 03-12-2009, 11:00 AM

It seems there are several things left unsaid here. It all depends on the size of your savings, and whether this cash you have to pay off the cc is savings or "extra" as you said, and where that would put you...

I would NOT bust my emergency savings to pay of a cc, 18% or whatever. Dave reminds us to take care of ourselves, and secure the shelter, the lights, the heat, the food, the transportation and the clothing before doing anything else. You haven't shown any amount of alarm (as many are feeling these days), so I don't mean to overreact

I just want to remind you not to jeopardize your emergency savings to pay off a credit card. In the end, if murphy shows up and you just sent 8000 of your EF to the cc company, then you're possibly even deeper in debt. I guess I'm thinking worst case scenario! I hate the idea of 18% as much as you do.

**rainbowgc** · 03-12-2009, 12:34 PM

Why not have Daughter pay back school loan?

**QuadSquadMom** · 03-12-2009, 12:58 PM

Originally Posted by Greebo

Dave's snowball is for psychology - he wants people to have a series of quick wins in order to develop the conviction to keep going when the payoffs slow down.

If you are certain you can keep paying off the debt with focus and conviction, then by all means, do the more mathematically sensible thing.

Just remember - it's not necessarily about the math. If we were doing good math here, we wouldn't be in debt to begin with.

Especially the last paragraph!!!

I would normally (strongly) advise against going the interest rate prioritization route; I know FOR SURE that Dave's plan works as prescribed. People start out that direction, loose momentum & focus, then abandon the plan from there. This tendency is the very reason Dave emphasizes how this is truly a behavioral change, not a math-that makes-sense situation.

That having been said, you already have step1 done (got that from your statement about having funds on hand enough to pay of the cc) as long as paying off the cc is done after the $1k baby emergency fund is set-aside.

Because you have the funds on hand, and you sound really ready to commit to the plan, as long as you follow through with killing off the next 2 debts immediately after the cc, I'm betting you will have the momentum necessary to go the distance and succeed.

Based on experience, I can say that you will need the gazelle intensity in order to propel you through step 3. It's tough to get through the savings period after the debt pay-off & you'll be glad you have the quick hits and the momentum in order to get through it. Temptation to spend will whisper from all angles during that time. We were surprised at how easy it would have been to give in, but are VERY thankful we stuck it through and stayed on plan!

We relied heavily on one other to 'talk the other down' from a temptation to spend, heck we had fun with it

!

We joke a lot that when we are tempted to spend, we hear Baker Street (Dave's opening song) playing out of nowhere and suddenly 'little Dave' is riding around on our shoulders challenging us!

We openly admit, were weird

!

Best wishes to you & your family!

**QuadSquadMom** · 03-12-2009, 03:35 PM

On second thought, I'd like to add you could use your hatred of the high interest rate to motivate you to hurry up and get rid of the debt if you did prioritize them in correct order (smallest to largest).

A couple bonuses to doing them in order: fewer bills to juggle monthly by wiping out 1.5 of them, you will be paying less in interest as you attack the debt anyway, by virtue of a monthly snowball hit to the remaining balance. The 18% interest could be the very fuel to fire this thing up for you!!! A blessing in disguise

...

I vote for do the steps in DR order. We did.

We never really considered interest rates, we were just eyes-on-the-prize determined to get to ZERO debt in a hurry!

**Cricketlegs** · 03-12-2009, 06:19 PM

Originally Posted by rainbowgc

Why not have Daughter pay back school loan?

Some people(like me) choose to send our children to school. IF the OP is anything like I am she/he has decided to pay for college, part of college or whatever they decided on.

I told my girls I would send them to college and I would not go back on my end of the deal.

If you say it, commit to it and do it. No taksies backsies and all that....That is just my take on it.

**itlw8** · 03-13-2009, 06:00 PM

we did not follow the order of lowest first because we had one the 0% ended in Jan so that became our focus.. it was hard because it took so long
and then the next was a sears that if we did not pay in full we would owe all the deferred interest.

coming here is what helped me keep my focus. I also would pay it off before the interest rates go up. keeping in mind you need emergency savings. Can you find a way to earn more money to build that savings back up quickly>