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Dave Ramsey Debt Snowball Question
Posted on 2/16/15 at 3:12 pm
Posted on 2/16/15 at 3:12 pm
The wife and I are about to start this process. We have 3 months of living expenses in savings. I want to pay off my tuck first since it is the lowest balance other than our house mortage. In order to generate more money for the monthly note, should I first stop paying an extra $100 towards my mortgage and apply it towards my truck? Second, could I lower the amount I am putting toward retirement toward the truck principal as well? If it start this process next month, I can pay the truck off in 13 months.
This post was edited on 2/16/15 at 3:13 pm
5
Posted on 2/16/15 at 3:16 pm to bayou choupique
Interest rate on the house vs. the truck? Either way, I'd definitely keep contributing to your retirement. If you want to pay the truck off faster, I'd shift mortgage money before I'd shift retirement money.
Posted on 2/16/15 at 3:17 pm to bayou choupique
If you are doing the Dave Ramsey method:
Only keep $1000 in the living expenses account and take the rest and pay toward the debt.
Don't put anything extra toward the mortgage, put it toward the truck.
Dave Ramsey says to suspend all retirement contributions until you are out of debt, but I disagree. I would max out retirement up to the match. If you don't have a match, then I would consider suspending all contributions.
Only keep $1000 in the living expenses account and take the rest and pay toward the debt.
Don't put anything extra toward the mortgage, put it toward the truck.
Dave Ramsey says to suspend all retirement contributions until you are out of debt, but I disagree. I would max out retirement up to the match. If you don't have a match, then I would consider suspending all contributions.
Posted on 2/16/15 at 3:18 pm to bayou choupique
I believe Ramsey suggests dropping retirement contributions. But only a percent or so.
Just a truck note and mortgage we are talking about here?
Just a truck note and mortgage we are talking about here?
Posted on 2/16/15 at 3:27 pm to anc
quote:
Don't put anything extra toward the mortgage, put it toward the truck. Dave Ramsey says to suspend all retirement contributions until you are out of debt, but I disagree. I would max out retirement up to the match. If you don't have a match, then I would consider suspending all contributions.
truck interest rate is 3.49% home mortgage interest rate is 3.625%. I would not stop all retirement contributions, I'm sorry I disagree with that. I would drop it to the company minimal match which is 3%. With this I could almost double my monthly note and pay it off in a little over a year.
Posted on 2/16/15 at 3:36 pm to bayou choupique
quote:
truck interest rate is 3.49% home mortgage interest rate is 3.625%. I would not stop all retirement contributions, I'm sorry I disagree with that. I would drop it to the company minimal match which is 3%. With this I could almost double my monthly note and pay it off in a little over a year.
Those interest rates are why I disagree with Ramsey. If you had 20% credit cards, thats one thing, but you can make way more than 3-4% in the market.
Posted on 2/16/15 at 3:40 pm to anc
quote:
Those interest rates are why I disagree with Ramsey. If you had 20% credit cards, thats one thing, but you can make way more than 3-4% in the market.
I know, the last few years my accounts have been making 10% on the average. I owe nothing on credit cards.
Posted on 2/16/15 at 3:50 pm to anc
Ramsey clearly states he isn't about the numbers since personal finance is largely about mindset. I disagree with some of his advice. I think everyone should ALWAYS get their company 401k match, but in the case of a car loan I think he is correct. Paying interest on a depreciating asset makes no sense to me. Yes it's less interest than you can make in the market most years, but it's still gambling with your future to some extent AND losing value. If you have the mentality of avoiding debt and not buying things you can't afford you will come out better 99% of the time.
This post was edited on 2/16/15 at 3:52 pm
Posted on 2/16/15 at 4:27 pm to txtiger21
I don't understand this argument. The truck is depreciating whether you owe money on it or not, what changes if you pay it off? You have less cash on hand and you fully own a depreciating asset, how is that any better?
In my opinion, the rates don't warrant you paying the truck, and especially the house, off before they are due. If it gives you peace of mind to pay off the truck and you have the cash to do it, then by all means do it, but I don't think you're hurting yourself putting that money into retirement instead.
ETA: his program isn't designed for someone like you as you seem to have your finances in order. The snowball plan is meant for people who have out of control debt and no self discipline.
In my opinion, the rates don't warrant you paying the truck, and especially the house, off before they are due. If it gives you peace of mind to pay off the truck and you have the cash to do it, then by all means do it, but I don't think you're hurting yourself putting that money into retirement instead.
ETA: his program isn't designed for someone like you as you seem to have your finances in order. The snowball plan is meant for people who have out of control debt and no self discipline.
This post was edited on 2/16/15 at 4:40 pm
Posted on 2/16/15 at 4:38 pm to Chris Farley
quote:
In my opinion, the rates don't warrant you paying the truck, and especially the house, off before they are due. If it gives you peace of mind to pay off the truck and you have the cash to do it, then by all means do it, but I don't think you're hurting yourself putting that money into retirement instead.
I have the cash to pay it off, but I realize that a vehicle is the worst investment you can make. I'll keep my cash for an emergency and continue to put what I am in retirement since it is making money.
Posted on 2/16/15 at 4:41 pm to bayou choupique
Even if your not getting a match on your 401k, you're saving money by not paying taxes on your contributions. At interest rates that low, I would pay just the car/house note and no extra.
Posted on 2/16/15 at 4:47 pm to bayou choupique
Seriously not a fan of delaying retirement savings, even if you don't have a match. Trad IRA contribution of up to $5500 is probably deductible for you, so you are missing out on compound interest/market growth as well as tax savings. Th whole Ramsey thing is geared toward people with high rate unsecured consumer debt, not sub 4% stuff. I a my happily paying a mortgage, a car note, and maxing my IRA as well as husbands SEP. Could I pay off the car if we didn't put anything into his SEP this year? Sure, but we'd be paying quite a bit more in taxes, plus missing out on potential market growth on that chunk of change. Plus the mortgage interest is deductible....if I wasn't paying the mortgage co, I'd be paying it to Uncle Sam.
Being debt free is a fine goal, but not necessarily a very sophisticated way to approach your finances. Deferring retirement savings is nearly always a bad idea.
Being debt free is a fine goal, but not necessarily a very sophisticated way to approach your finances. Deferring retirement savings is nearly always a bad idea.
Posted on 2/16/15 at 5:04 pm to hungryone
I think the reason dave ramsey suggests going after the largest balance of debt is because you gather some momentum and attack each account/debt that way. I have done that approach, but I don't agree with suspending all retirement account contributions until debt is paid off - if you suspend your contributions to 401k - you loose that tax deduction as well as your employer match. Ramsey is the expert and is making money on his experience.
Posted on 2/16/15 at 5:54 pm to Gorilla Ball
I don't understand the OP.
Are you just talking about a car and a house note?
The snowball is more geared toward a dipshit like me with credit card debt.
Are you just talking about a car and a house note?
The snowball is more geared toward a dipshit like me with credit card debt.
Posted on 2/16/15 at 6:29 pm to LSU alum wannabe
quote:I don't understand either. Personally I don't think he needs the debt snowball approach at all if his only "debt" is the car and house at under 4% interest
I don't understand the OP.
Are you just talking about a car and a house note?
Posted on 2/16/15 at 7:32 pm to Gorilla Ball
quote:
I think the reason dave ramsey suggests going after the largest balance of debt is because you gather some momentum and attack each account/debt that way.
You mean the smallest first? The debt snowball (Baby Step 2) means you make the minimums on everything, and pay all you can afford - until it hurts - on the smallest balance, then roll it to the next smallest until all your debt (other than a mortgage) is paid off.
What the OP has done is Baby Step 3 first - I don't disagree that a correct modification to the baby steps is to at least keep your match - after all Baby Step 4 is to get back up to 15% of gross income towards retirement - he puts that even before saving for children's education.
1 - $1000 emergency fund
2 - debt snowball
3 - 3 to 6 months expenses in savings
4 - 15% income to retirement
5 - establish savings for children's education
6 - pay off the house early
7 - build wealth and give
Posted on 2/17/15 at 6:27 am to Ace Midnight
$1000 seems low for an emergency fund.
Posted on 2/17/15 at 8:21 am to drexyl
That's just a temporary emergency fund until you pay off the bad debt
I do agree though. I wouldn't feel comfortable with only 1000 in emergency fund unless I was trying to pay off stuff with 20% interest
I do agree though. I wouldn't feel comfortable with only 1000 in emergency fund unless I was trying to pay off stuff with 20% interest
Posted on 2/17/15 at 9:07 am to Croacka
You've got to remember that the $1000 emergency fund is for people that are seriously in the red and just starting to turn it around. The theory is at that point, a large (3-6mo living expense) fund would cripple their ability to make payments. The $1000 is to make them feel good about putting a little away and having a little cushion. Then you tackle debt then 3-6mo emergency fund.
Remember, dave is generally geared to financial r-tards, not people that frequent Internet message boards about money.
Remember, dave is generally geared to financial r-tards, not people that frequent Internet message boards about money.
Posted on 2/17/15 at 9:09 am to Chris Farley
quote:
The truck is depreciating whether you owe money on it or not, what changes if you pay it off? You have less cash on hand and you fully own a depreciating asset, how is that any better?
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