JoeTaxpayer

I continue to be amused by the debate over whether the ‘Debt Snowball‘ that Dave Ramsey suggests is the best method for fast debt reduction. I wrote about this some time ago on my Feature Web Site, and got quite a bit of email telling me how I ignored the emotional side. They quoted Dave Ramsey, “personal finance is 20% head knowledge, 80% behavior”.
Today I came across the web site “Consumerism Commentary”, which had a nice spin on paying the highest interest debts first (as I suggest), but calling this method “The Debt Avalanche“. Sounds good to me. Nice article.

Joe

written by JOE \\ tags: dave ramsey, debt, debt snowball, Finance, interest, irs, Personal Finance

My March feature article discusses Money Merge Accounts. This system came to my attention a few months back in the form of a question on a usenet newsgroup. Since then, I’ve gotten as much information as I’ve been able to uncover and am staying with my gut reaction, that if one has the money and desire to pay their mortgage off early, they would be best off doing it on their own. I’ve also spent some time and created an MMA spreadsheet which will let you enter your own number and decide for yourself. Add a comment to request a copy. If it helps you save $3500, please donate $35 to your favorite charity in my name.

In other feature articles, I’ve discussed Bi-Weekly Mortgages, and the general topic of pre-paying one’s mortgage. The larger message here is that there are many approaches to take, but whatever you choose to do needs to be in the larger context of the rest of your financial situation.

Note: I’ve added a page on the sidebar with links to sites that discuss MMA in greater detail.

JOE

written by JOE \\ tags: dave ramsey, Finance, foreclosure, fraud, Investing, jferheart, money, Mortgage, scam, Subprime

Indeed, the use, and more to the point, the misuse of debt can lead to a snowball effect. The new charges and the interest piling up and getting out of control, like a snowball about to trigger an avalanche. But author Dave Ramsey using the expression debt snowball to refer to his methodology to eliminate debt. He suggests lining up your credit cards by balance and making the minimum payment on all but the last one, the one with the lowest balance. That would pay off the lowest balance cards first, freeing up their entire payment for the next card in line. I like the advice to eliminate one’s debt, but I’d suggest lining those cards up by rate. An extra $1000 against the highest rate card may save you $240 per year in interest or more. But against that last teaser rate card you got, 4% for 18 months, just $40 the first year. Any argument I see in favor of Dave’s priority suggests that there’s a good feeling to knock off the debt from one card and count down the cards. Me, I’d rather keep a spreadsheet, or notebook, showing each balance along with the interest charged each year. The half of the money at the highest rates can easily have total interest of twice the bottom half. Pay those cards and see the real snowball effect. And see this example, let me know if you disagree.
JOE

written by JOE \\ tags: dave ramsey, debt, debt snowball, Finance, money