Question for Dave Ramsey Followers.......

Updated on August 19, 2011
C.A. asks from Dallas, GA
12 answers

Okay Dave Ramsey followers here is my question but to give some background first. We have our $1000.00 emergency fund set up. We have three credit cards with the lowest balance having $5028.33 on there. A few months ago I finally convinced the hubby to contact them and get them to drop our interest rate from 17.99% and he was successful in doing so. They told us we would have to agree to close the account and pay a minimum of $100.00 per month. We were paying a minimum of $130.00 anyways and we haven’t used the card in over a year so we agreed. If we ever miss a payment or we are late then of course they have the right to jack the interest rate up. My husband had to be the one to do all of this since the card is in his name….I‘ve tried and they won’t talk to me even though I am the one to send them their payment every month-lol! Ironic huh? However I understand why and he can certainly get that changed but at this point why does it really matter? We are trying to pay the darn thing off!
Well we have continued to pay the $130.00 even though the minimum is $100.00 any “extra” money we get we have plugged into an ing savings account. We have managed to save $2000.00 on top of our $1000.00 emergency fund. Therefore making the total $3000.00 in case you need that-lol!
My husband’s car has $6,832.01 left and it cost us $317.00 a month. We opted to not exercise Dave’s advice on trading the car in because it has great gas mileage and just wouldn’t make sense to rid of it when we are so close to paying it off. My question is 1. would we be better off to go ahead and send off what we have managed to pack away but still keeping our emergency fund in tact OR keep tucking the money away until we have the full balance to pay in full? Also what would you do? Would you go ahead and work on paying off the car or the credit card since the balances are so close anyways? The interest rate on the car loan is 7% and the interest rate on the credit card is 6%. I’m not a very good mathematician but I’m trying to improve my financial smarty pants if I can so I just wondered what would you do?? I hope I haven’t left anything important out…!

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answers from Springfield on

I would rethink the car. You have about 2 years left to pay it off? That's $317 you could be putting towards the credit cards every month for the next 2 years. That would make a huge difference.

There are plenty of older, cheaper cars with great gas mileage. If you go on Craig's list you can probably find one for $2000. Something to think about.

I understand why it seems like it would make more sense to pay off the card with the highest rate first, but Dave is right. Pay off the smallest debt first. Once that is done look at the next smallest debt. Begin paying the minimum plus the minimum from the previous debt every month. For example, you're paying $130 on your smallest debt right now. Let's say you're also paying $200 on your next smallest debt. Once you pay off the smallest debt, begin paying $330 (200 + 130) until it's paid off. Then look at your next smallest debt. Let's say you're paying $100 on that. Now you'll begin paying $430 (100 + 330). Every month you've been paying $430, and you that entire $430 is going towards the original 3rd largest debt. This is what Dave calls the "Debt Snowball."

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answers from Pittsburgh on

Pay the extra toward your smallest card balance, regardless of the interest.
And you really DO need to sell the car. It DOES make sense to do so.

And you HAVE cut up any & all credit cards right? If not, you need to do that yesterday.

Good luck!

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answers from Los Angeles on

The car is 7% interest. The credit cards are 6% interest. Not that much difference. The creditcard balance is $5000 and the car is $6,800. A moderate difference.

If you have saved $2000 on top of your emergency money, then you have some economic cushion in your budget.

I'd pay off the car first. You save an extra 1%. I'd make the minimum payment on the credit cards and put the extra on the car. When the car is paid for you can reduce your full coverage on your insurance, but keep the uninsured motorist coverage, and that will give you added savings, making it even more of an advantage to pay off the car first.

Good luck to you and yours.

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answers from San Antonio on

Dave suggests paying off the smallest amounts first working up towards the bigger amounts and not looking at the interest. His thought is the sooner you see success the more likely you are to keep with the program and becoming debt free.

So use the 2K towards the smallest debt you owe and hurry up to get it paid off. If you want to follow what Dave would say...

Good job on becoming debt free!!

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answers from St. Louis on

- Pay off debt first - keep your $1000 emergency fund, ANY AND ALL extra money goes toward debt. You wouldn't borrow money at 17% interest to put it in savings, right? Well, then take that money in savings (sans your emergency fund) and put it toward the debt accumulating interest.

- You can follow Dave and pay off the smallest debt first, but if you have a higher debt with a high interest rate, it makes more sense to pay off the higher interest rate debt first. I can PM w more explanation if necessary.

ETA: And Jennifer G is right, Dave would tell you to trade in that car. You CAN find something cheaper with comparable gas mileage. You just have to be willing to drive something less nice. You are NOT close to paying it off when you owe over 6k and have quite a bit of CC and other debt. $317 is far too much for a car payment when you have cc and other debt.


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answers from New York on

I do not know the Dave Ramsey plan.

Here's what I would do. I would take some of the money out of savings since you're not earning any interest on it. Keep the $1,000 emergency fund.

Make one additional car payment, that way your always one month ahead so if there is a true emergency, then you could always skip a month if absolutely necessary.

You don't mention the balances or the interest rates on the credit cards. If they are high interest (18%), then I would start putting the extra funds towards those.


answers from Kansas City on

I would take the $2,000 and pay it on the credit card.



answers from Fort Wayne on

do the credit card that is accumulated monthly the car note is stright foward. the car is less than 2 yrs till paid off and the cc at the 130 is 3 yrs can you start making double pmts on cc? so more is going to principle? also why not look into refinance your auto loan we did a few months back from 7% to 4% knocked off $130 per month at the same remaining loan time. that would free up some coin for you also. try chase auto finance they did a great job and you can do it online at keep up the good work


answers from Dallas on

I think Dave always advises to pay off the debt first. I would put the extra $2000 towards the debt. The faster you pay that off, the better your life will be. Remember that that interest compounds and you end up paying so much more the longer you pay on it, so the quicker the better! And then you will have all that money to save.

How great you are doing! We are still working on baby step 1.



answers from Kansas City on

Well, pay off the cc and you only have 130.00. Pay off the car early and you'll have 317. Personally, I would put 2 grand down on the car (almost 7 months worth of payments taking you down to 18 month payoff time). This is better than taking down your cc to 3000 and then taking another three years to pay it off at 130 dollars a month.


answers from St. Louis on

Pay down, the interest rate you are earning, if any, is lower than what you are paying on the loan. Plus when you pay down principle the amount of your payments that goes to principle goes up, in other words less interest is paid in aggregate.

Here I did all that without Ramsey. :D



answers from Columbus on

My husband & I paid off $60,000 worth of debt in just over two years using Dave Ramsey's system. We have been debt free (except our home mortgage) for 18 months & it's awesome! We are still following his plan. We budget and save our money each month.

If you are truly following his plan then you've completed step 1 by saving $1000 as an emergency fund. That should stop you from incuring any more debt. Now your ready for step 2 which is the debt snowball. Selling or trading in your car is a good move. That frees up more money to pay off your smallest cc debt. Once you've paid off all your debts except your mortgage your ready for step 3. Step 3 is saving 3 to 6 months worth of spending.

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