Our next step…

Now that our credit card debt is gone, a reader asked what our next step is going to be.

Dave Ramsey suggests paying the extra amount on your lowest debt (which would be the student loan) but the minimum payment on our truck is more 4 times higher than the student loan. Plus, the interest rate on the truck is twice as much.

Another good reason to pay more on the truck is to quickly rid ourselves of the hefty payment. In the event of job loss, a student loan can be deferred due to financial hardship – auto loans are not nearly as forgiving.

We’re hoping to have the truck paid off in 10 months or less.

Here we go!

Posted by Beks on September 3, 2009 at 5:00 AM in Credit Cards, Debt Updates, General Debt, General Personal Finance, Loans, Reducing Debt | 21 Comments »
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a.nonymous responded:
Posted: September 3rd, 2009 at 5:44 am
I don’t think there’s anything wrong with changing the order as long as you are confident that you won’t stray from the path of getting out of debt.
Add your excellent arguments to that, and I’d be surprised if Dave would care to give you grief about not following his plan to the tee…

After all, Dave’s main aim is to keep morale and motivation high up there by knocking off smaller debts sooner to receive some positive feedback.
Especially for starters, the motivational issue is the big problem. Math is only a good (nay, better) guideline to go by if your motivation won’t drop off – in that case, even the best math skills wouldn’t help you get out of debt, after all.
brooklynchick responded:
Posted: September 3rd, 2009 at 7:17 am
Sounds smart! Good luck!
Donna responded:
Posted: September 3rd, 2009 at 8:03 am
Don’t you know you’ll get burned at the stake for doing the baby steps differently?! (kidding, of course!)

Get that truck paid off, you’ll feel a huge sense of relief when it’s done. Keep up the great work!
Sallie's Niece responded:
Posted: September 3rd, 2009 at 9:00 am
Obviously paying the truck off next is the right way to go. Good luck!
creditcardfree responded:
Posted: September 3rd, 2009 at 9:00 am
Great plan! Keep moving forward.
fern responded:
Posted: September 3rd, 2009 at 9:56 am
sounds like you’ve thought it through. Makes sense to me!
proverbslady responded:
Posted: September 3rd, 2009 at 10:20 am
How exciting to have all your credit card debt gone! Paying off the truck in 10 months sounds amazing and I long for the day we can do that too!
Michelle responded:
Posted: September 3rd, 2009 at 10:32 am
You are making some great progress Beks! Congrats!
David@Dinks Finance responded:
Posted: September 3rd, 2009 at 11:41 am
That’s a good idea. Student loans are the last debt you should be paying down. Get that truck paid off and you will feel even better about your financial situation!
Cynthia responded:
Posted: September 3rd, 2009 at 12:49 pm
I would have done the exact same thing. In fact I did the interest order instead of balance order philosophy the whole time we were working our way out of debt. I’m a numbers girl though and had to do it that way, lest my head explode. Heh.
John responded:
Posted: September 3rd, 2009 at 4:01 pm
I also like to think of debt reduction as it relates to quality of life, and stress levels.

By paying down the debt with the much higher monthly payment, you’ll knock that off the list, and more quickly loosen your monthly cashflow… to a larger degree that is.

When that money is freed up, I would imagine, a lot of your stress will be lifted over money… at that point, you’ll only have ~$8300 left on the student loan, and can pour ALL of your money toward that remaining account. I bet you can kill in in 5 months then! Easy.

Being in debt is a big stresser in our lives… reducing the stress is just as important as reducing the balances! Life is about living.
emmi responded:
Posted: September 3rd, 2009 at 5:33 pm
Doing highest interest first makes too much math sense to me too. In the end your debts will be gone sooner. Why pay more in interest total while doing it? That’s just odd.
John responded:
Posted: September 3rd, 2009 at 9:57 pm
I believe you should pay off the higher interest loan first. Also, try and put the extra money you have now from no longer having credit card debt and put that towards the truck as well. You will be able to pay it off in less time. Then take the amount you were paying towards the credit cards and the truck and put it towards the student debt. You will really be cooking after that.
njsm responded:
Posted: September 4th, 2009 at 8:51 am
Not to mention… you actually get something out of the education from a student loan, where you can say that the education itself is an appreciating asset. The truck, on the other hand, is definitely a depreciating expense. Good idea to start working to get rid of that truck loan first. The less you owe on it, the better, since cars, trucks, etc.. get cheaper to operate the longer you own them as long, as you own it outright!
Chitown responded:
Posted: September 4th, 2009 at 11:31 am
Congrats and Good Luck!!!
Beks responded:
Posted: September 4th, 2009 at 7:02 pm
Thanks for the encouragement!

John – We already rolled our credit card payment over to the truck. We have three years of payments left at the minimum payment. No credit card debt cut that by more than 2/3. Woo Hoo!
Donna responded:
Posted: September 4th, 2009 at 8:10 pm
Emmi–because as Dave Ramsey likes to say if you were doing math, you wouldn’t be in debt in the first place! ;P He recommends paying off debts in order of smallest to largest because (especially in the beginning) when you SEE progress happening (by paying off that first debt) you want to keep going because you see it happening. This process is more about behavior than it is math. (so says Dave Ramsey).
Nicole responded:
Posted: September 5th, 2009 at 5:55 pm
Good call! As long as the debt is going down, it will all come out in the wash:)
John responded:
Posted: September 6th, 2009 at 1:34 am
In response to Donna’s comment I can see how paying off the smaller debt first can have a psychological effect and motivate people to keep going. So if that’s what it takes to get someone motivated I say go for it otherwise, pay off the higher debt first. I also think the current economic situation is what it is because of the pyschological effect of everyone worrying they are going to lose their home or job and keeping people from spending money. Psychology can really effect people when it comes to money.
Ann responded:
Posted: September 6th, 2009 at 10:26 am
You can also deduct student loan interest on your taxes, but there is no such benefit for an auto loan. The benefit to leaving student loans until the last debts to be paid off is that you can take advantage of that longer.
Beks responded:
Posted: September 9th, 2009 at 10:27 pm
Ann – Oh my goodness! I completely forgot! We write off that interest every year! I would have lost that write off. Thanks for the reminder!!!