Aug 02
A nice cartoon illustrating the situation many of us are in:
Enjoy the weekend,
Joe
Jul 18
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
Jun 23
Consumer Reports recently offered an article titled “Your Debt; 8 Benchmarks For Borrowing“, which, for the most part, I liked and will consider adding to a List of Rules I’m assembling. Among the warning signs;
- 28% - Monthly Mortgage (including property tax and insurance) should not exceed this number. Really? That’s exactly what I suggested in my post Mortgage 101, so I’m in full agreement there.
- 80% - The first mortgage should not exceed this level. A lower debt to equity ratio is better. Interesting, I made the same comment in Mortgage 101, but that was more to benefit the bank, not the borrower. I’ll maintain that if the payments are still within the guidelines, there’s nothing magic about 80%.
- 6 - month’s worth of income as emergency money. I wrote about this as well, a couple weeks back in my controversial Emergency Funds post. This may be a worthy goal, and right for many, but not at the top of my list. I have been aggressive in retirement savings, well above average, managed the mortgage with serial refinancing to capture a low rate and an amortization that will end the mortgage well before retirement, and funded college in full for a child who is only 10, yet I’ve ignored this rule.
The CR article goes on with guidelines that are still worth reading if not following right to the letter.
Joe
Feb 04
Some time back I made some remarks on my main site regarding some of Suze Orman’s advice. Long enough ago that it now has been moved to The Archives. A regular reader of mine wrote that those posts appeared to be mean spirited, and I edited to change their tone a bit and also stopped with new posts in that direction.
Now, I just had the opportunity to see a CNBC special she did for Martin Luther King Jr. day when my recorder is set to record Kudlow & Co. I must say, she was right on the mark with one great answer after the next.
- Do I pay off the small balance or high interest credit cards first? She replied,”Anyone who tells you to do anything but pay the high interest cards first is an idiot!” Well, right on, Suze. I’ve said this is the one flaw of the ‘debt snowball‘, and I’m glad you agree.
- She advised to deposit enough to one’s 401(k) to capture the company match. Again, I’ve been preaching the same message.
- She advocates Roth for those starting out and how it can serve double duty as an emergency fund, exactly as I remarked last month in my post ‘Roth Magic‘.
- Lastly, she stated most emphatically, that the only people Variable Annuities were good for was the salesmen who sold them.
- I’ll also admit that even though I disagree that one should ever invest 20% of their money in gold, Suze called it right in her advice of July 2006. Gold was about $640 then, $925 now.
I don’t know if she changed her approach a bit or I just happen to catch a good show, but today I liked what I saw.
JOE
Dec 19
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
