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Paying off debt questions

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littleroc02us
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quote:
Originally posted by Wino
Falling back on Dave Ramsey's sayings, and I can only paraphrase:

If you did the mathematically smart thing, then you wouldn't be in debt. Your problem is your spending, not your debt.


DAve Ramsey advises people to use the Debt Snowball method, which defies all mathematics as others have stated above.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Thu Sep 27, 2012 1:20 pm
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Wino
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quote:
DAve Ramsey advises people to use the Debt Snowball method, which defies all mathematics as others have stated above.


It has everything going against it except for the fact that it works better than any other method. See my link. This is like the guy at the HS basketball game who tells us how bad the other team dribbles, how bad they shoot, how they don't look for the open man.

The other team is terrible. Except they just beat your team.

Scoreboard! Scoreboard! Scoreboard!
Post Thu Sep 27, 2012 2:33 pm
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littleroc02us
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quote:
It has everything going against it except for the fact that it works better than any other method. See my link. This is like the guy at the HS basketball game who tells us how bad the other team dribbles, how bad they shoot, how they don't look for the open man.

The other team is terrible. Except they just beat your team.

Scoreboard! Scoreboard! Scoreboard!


There was a post that claimed that people who use the Snowball method are like irresponsible children, which I don't believe for a heartbeat as I've stated before, therefore I'm not sure what you analogies mean???? Confused I only can speak from personal experience with my failures and successes.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Thu Sep 27, 2012 3:07 pm
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Wino
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I was just being silly.

The point is that paying off debt is not a mathematical exercise. It is a psychological exercise.

When I started working, I was making less than $20K per year, which was low even in Jimmy Carter's term. I'm sure if I were to have been told then what I'd be making 30 years later, I would have thought, "Wow! I would have millions in the bank if I made that much."

But I don't have millions in the bank. As my income went up, so did my spending. In fact, my spending went up faster than my income because I had "good credit." I now believe there is no such thing as "good credit."

I'd prefer to pay for stuff with "bad cash." That "good credit stuff" only puts you into a hole.

Anyway, no matter what method you use to pay off your debt, it won't really matter unless you change your psychology and STOP SPENDING TOO MUCH. Debt snowball, debt avalanche, debt tsunami, Wino-method... they all work as long as you spend less than you're making. How fast is more of a function of how much sacrifice you make than how much interest any one of them causes you to pay.

I'm going to do a spreadsheet. I will wager - before doing the sheet - that the difference in money paid by any one of the methods above is less than 2% and that the time to get out of debt will be less than two months different. Any takers?
Post Fri Sep 28, 2012 7:18 am
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soybean
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quote:
Originally posted by littleroc02us
quote:
Well, for all those folks who can't discipline themselves to take the mathematically correct approach - and I would agree that may be substantial percentage of debtors - your approach most likely does work better. So, this points to a non-mathematical issue, to an issue of psychology, and I have a hard time understanding how many people lack the discipline to take the mathematically better approach of paying off high-interest debt ahead of low-interest debt. It's like we're dealing with kids, not intelligent adults. This is perhaps also an indication of a low level of financial literacy, in my opinion. People aren't doing the analysis and budgeting they should be doing to minimize interest expense during their debt payoff strategy.


I believe that I have a good financial head on my shoulders do to the facts that I have no debt except my home and invest 15% of my income and I used the snowball method and it was very successful for me, so no I don't agree with your statement. It isn't so much discipline as it is motivation and the psychology of winning because you feel like your accomplising more. What happens with paying off the highest interest rate debts is that when the balance of a particular debt is high sometimes it may takes years to pay down and that may frustrate even the most disciplined of us. I believe that on average more people quit with this method. As an example of lose who lacked patience just look at all the home buyers in the housing crisis that were so eager to get a home that they signed these no down payment loans, took adjustable rate mortgages and spent more then they could afford.
I never said the snowball method is not a method to be successful is paying off debt. As I said, "I would agree that for a substantial percentage of debtors - your approach most likely does work better." But, again, if it works better, that's due to the psychology of it, as you've described. My point, again, is that taking that approach will result in paying out more money in interest during the whole process of paying off the debt.
Post Fri Sep 28, 2012 6:30 pm
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soybean
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quote:
Originally posted by Wino
I'm going to do a spreadsheet. I will wager - before doing the sheet - that the difference in money paid by any one of the methods above is less than 2% and that the time to get out of debt will be less than two months different. Any takers?
If you do that spreadsheet, test various scenarios with varying differences in interest rates between different accounts. That should reveal that the greater the difference in interest rates, the more advantage there is in paying down high-rate accounts aggressively.
Post Fri Sep 28, 2012 6:40 pm
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Wino
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I was working on the spreadsheet I mentioned, and found a free one online that does EXACTLY what I was planning. Not being one to re-invent the wheel, I downloaded it.

http://www.vertex42.com/Calculators/debt-reduction-calculator.html

The above will send you to a download where you can get an Excel spreadsheet (with instructions) that will let you determine how to pay off your debt. It allows for snowball (smallest balance first), avalanche (highest interest rate first), user specified, or just keep paying minimums. The only one it leaves out is the tsunami, but that's covered under user-specified.

Sorry if the link is out of order, but I think it actually adds to this discussion.
Post Mon Oct 01, 2012 2:35 pm
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jerrodmerit
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Now, what do you do with any debt that you have that is less than 6%? This answer can be easy as well. You must ask yourself this: how comfortable are you in carrying your debt? This question does not simply ask if you are able to make your monthly debt payment, although that is part of the question.
Post Fri Dec 07, 2012 6:03 pm
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