There is a lot of personal finance advice out there! I personally love to read all the latest books on money management, but I realize not everyone is that big of a money nerd. So today I’m going to break down the guru wisdom of Dave Ramsey and Suze Orman and tell you how you can make their advice work for you.
Question: How should I pay off my debt?
Dave says you should start with the smallest debt balance and focus on putting everything extra you have towards paying it off. When you pay the first balance off you roll what you have been putting towards the first debt into the second debt and so on, creating a snowball effect. He recommends you focus on debt size because getting the early psychological win of eliminating one of your debt sources will provide motivation to keep you going.
Suze says sticks with the math. She recommends putting your debts in order of highest interest rate to lowest, and start with the highest rate debt, regardless of size. This is mathematically the best financial option since those high interest payments are going to the credit card companies pocket, not paying down your balance.
What should you do?
I side with Dave on this one, the snowball method worked for me personally. When you commit to getting out of debt, you are working to make long term behavior changes. Being able to check small balances off and see the progress you are making is huge in helping you stick the plan. Ultimately the best personal advice for you is what FEELS right. All advice needs to be applied to your personal situation, there is no one size fits all.
For example say you have one high interest rate card that is stressing you out. You want to go with Dave’s advice and pay off the smaller balance first, but this card in particular is keeping you up at night. By all means pay that first! Then move on to one of the plans. Make it work for you.
Check back in next week for the second installment of Basic Personal Finance Advice Decoded: How big of an emergency fund do you need?
Now its your turn. I want to know what debt repayment method resonates with you the most, let me know in the comments below.
Have another money question you want decoded? Send it over to firstname.lastname@example.org