Down With Debt
I think one of the reasons that people have a hard time paying down debt is because they don't know exactly how much they owe. I think that we subscribe to the theory that most debt is bad...no such thing as "good" debt. I've been listening to Dave Ramsey quite a bit and I like that he is encouraging (prodding, pushing) people to become debt free. He is not very sophisticated, but I think that any system that helps reduce consumer debt is worthwhile.*
My plan is to post exactly what my current debt is and how we plan on paying it down, but I struggle like the average person. I don't know where we stand, so I'm going to estimate.
School Loans $75,000.00
Consumer Debt $9,500.00
Family Debt $10,000.00
2 Car Loans $36,000.00
Total Estimated Debt $130,500.00
This seems like a whole lot of cash...and it is. Here is some additional information.
1. My wife is currently in a doctoral program, hence the high loan amount. The interest rate is very low and we have a long time to pay it off.
2. My car has a 0% interest loan, but I have a high payment and it gets terrible gas mileage.
We are going to get the exact figures and budget sometime in the next week. We'll let you know how we plan on aggressively reducing this debt.
*Dave recommends people their minimums on each debt and use all extra money (and I mean ALL) to pay down their smallest debt until it is clear. When each debt is paid off, you use that minimum and "snowball" into the next smallest debt. The theory is that you are building momentum and pretty soon you will be paying much larger amounts on your bigger debts.
I'm using a similar theory, but am paying off my highest interest debt first and working to paying off my lowest interest loans last.
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I've come to the conclusion that we need to increase our cash flow if we are going to pay down debt faster. Since we just had a baby 5 months ago, it probably is not going to happen with increase workload for either of us ... Read
Yeah, that Dave Ramsey snowballing approach seems to have a lot of appeal to the general masses, but I agree that you're probably better off attacking the highest interest debt, not the debt with the lowest balance.
I agree with Dave, but am putting a Suze Orman spin on it. What I mean is pay off the highest interest rate first or the debt that bothers you the most. For instance, your family debt may be at a low interest rate, but it may bother you the most. Each month, pay extra (as much as you can)to that loan and you will have it paid off soon. You can do it, just prioritize and pay monthly (here is how I see your loans in order of priority):
1. Consumer Debt $9,500.00
2. Family Debt $10,000.00
3. 2 Car Loans $36,000.00
4. School Loans $75,000.00
