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Personal Finances / Credit Cards and Consumer Debt


Subject:  Re: It's time. Date:  1/21/2019  11:27 AM
Author:  aj485 Number:  312360 of 312696

Welcome and Congratulations on deciding to take charge of your finances!

I second YewGuise's comments about gathering your spending history and posting it here for analysis. I would also encourage you to track every penny you spend going forward. Write it down, or use an aggregation program like Mint to track debit* transactions, and input your cash transactions manually, as well as categorizing the checks.

*Notice that I didn't say anything about tracking credit card transactions. That's because in order to pay off credit cards, the best first step that you can take is to stop using them completely. That's just like filling in a hole - if you want to fill in a hole, you stop digging it first.

If you feel that you *must* use credit cards (and I would suggest that you should re-examine your desire to actually pay off your cards if you think you *must*), then at least put all new charges on a single card that you pay off completely, EVERY SINGLE MONTH.

Dave Ramsey baby steps seems like a decent plan, and I think I could get "gazelle intense."

Dave Ramsey's Baby Step 2 approach of paying down the smallest balances first, rather than ordering the debts by interest rate, is not the most efficient way to pay down debt. It can be psychologically motivating, but unless ordering your debts from smallest to largest also happens to order the interest rates from highest to lowest, it will end up costing more money to pay off the debt.

It's up to everyone to make up their own mind what will work for them, but the fact that Ramsey doesn't mention this choice in Baby Step 2 has always irked me, since that means that he's making the choice for the debtor. He talks a lot about how "it's more motivating" to pay off smaller debts, but 'motivation' is a personal thing, and he's not giving people enough information to make their own choice about what motivates them.

If, along with posting your spending analysis (per YewGuise's post), you would post your debts, interest rates, minimum monthly payments, and the income you have to pay the debts down, your paydown strategy can also be analyzed, and you will understand how much each way will cost you, and make your own choice.

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