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OK, but my point still stands that the "mathematically wrong" answer is not the same thing as the "wrong" answer, no qualifier included. There are so many soft factors that play into the latter.
I agree the caveats are needed (e.g., at least a brief explanation of why) if you are to give a non-mathematically-optimal recommendation, lest you permanently lead someone down a bad reasoning path. But I don't think throwing around statements like "There's a right and wrong answer here, end of story" is helpful for the conversation either.
I would have to disagree. There is no answer that’s mathematically wrong, that also DOES NOT have moral/ physical implications on you/someone else's well being that can be considered even "remotely correct."
For example, making an emotional decision to run into a burning house to save another human being is mathematically incorrect but it’s not a wrong answer. But doing what you suggested with a credit card payment is always wrong because there are no negative repercussions of following the mathematical answer.
The only thing that you lose out on is the "mental high" or "feel good" moment you would have had if you paid off the smallest balance first. But that type of need for those little moments of "feel good" is what gets people into these types of debts in the first place. They would be much better off following the mathematical advice because in the long run it would help them build the self-discipline needed to make the decisions in life that would give them actual benefits instead of temporary "feel good" moments.
Last edited by griffon652; 03-19-2014 at 02:11 AM..
ok another question. and an important one to me. does it matter if I pay off in a lump sum or pay down assertively month by month. which TWEAKS my credit score the most in my favor?
When your credit score is calculated, a portion of it is based on your debt/available credit ratio. It is calculated based on your total debt/available credit ratio and they also calculate each account individually. This is why it hurts your credit score if you close accounts once you've paid them off. It's better to shred the card and never use it (or put it in a plastic baggie of water and freeze it) but leave the account open so the available credit can offset any debt in the overall score.
If you have a lump sum of cash and are trying to get out of debt and boost your credit score, I see no reason not to pay off in a lump sum. You will save money on interest. You will immediately boost your credit score by reducing your overall debt/available credit ratio. Consider though, how you want to allot that lump sum. It is better to have all the cards down to the 35% ratio or lower than to pay off one and have balances that exceed 35% or even worse, 50% of the available credit on the others. This will maximize the impact of paying off in a lump sum. It will take effect as quickly as the credit cards report the information.
I agree with NJ that the latter is foolish, but I defy him/her not to squash that $600 payment in one fell swoop if ever faced with this scenario.
we have one student loan account with a relatively low balance that my wife has said that she figured id just pay it off since its so low. no no no, i cant do it. im paying bills all the time, it doesnt hurt me to keep one around but it does hurt me if i do something that isnt best for my finances. it really is so easy to do it right, so why do it wrong? once someone has committed to paying down the debt, they may as well stick do it the right way.
i get no mental satisfaction from reducing the number of debt accounts i have. i get satisfaction from maximizing my wealth.
If you have good credit, you should be getting zero interest rate offers in the mail. So, next time you get one of those, transfer all balances to that one, then divide the amount by the number of months you get charged zero interest, and then set up that monthly payment automatically in your online banking. Then either cut up the cards or put them in a safe or whatever it takes for you not to use them. Do not close the accounts though - this can negatively impact your credit score. Generally speaking, it "plays better" on a credit score for you to have open lines of credit with a zero balance.
I would have to disagree. There is no answer that’s mathematically wrong, that also DOES NOT have moral/ physical implications on you/someone else's well being that can be considered even "remotely correct."
For example, making an emotional decision to run into a burning house to save another human being is mathematically incorrect but it’s not a wrong answer. But doing what you suggested with a credit card payment is always wrong because there are no negative repercussions of following the mathematical answer.
The only thing that you lose out on is the "mental high" or "feel good" moment you would have had if you paid off the smallest balance first. But that type of need for those little moments of "feel good" is what gets people into these types of debts in the first place. They would be much better off following the mathematical advice because in the long run it would help them build the self-discipline needed to make the decisions in life that would give them actual benefits instead of temporary "feel good" moments.
I understand what you're saying but I don't think paying the smallest balance is only for "emotional" high. Someone who is truly in a lot of debt will probably not have enough extra money to put a dent in a large balance. However if they can quickly eliminate a small balance and add that to what they're paying on the large balance, then it might work Better for them. They might pay more in interest in the end, but at least they'll be able to pay off the debt and not get further behind trying to tackle a balance that's too much for them to handle. This is not a one solution problem.. too many variables.
I understand what you're saying but I don't think paying the smallest balance is only for "emotional" high. Someone who is truly in a lot of debt will probably not have enough extra money to put a dent in a large balance. However if they can quickly eliminate a small balance and add that to what they're paying on the large balance, then it might work Better for them. They might pay more in interest in the end, but at least they'll be able to pay off the debt and not get further behind trying to tackle a balance that's too much for them to handle. This is not a one solution problem.. too many variables.
why? for an emotional high? who cares if you can get rid of 1 debt account? what is the value in that? its getting rid of the debt that matters and you start with the higher interest rate.
why? for an emotional high? who cares if you can get rid of 1 debt account? what is the value in that? its getting rid of the debt that matters and you start with the higher interest rate.
and yes, this is a one solution problem.
While you may not care about it and see no value in it, there are lots of people out there who DO care about it.
While Dave Ramsey's method is sub-optimal from a mathematical perspective, the fact remains that his methodology works for a lot of people that have been unsuccessful in their previous attempts to pay down their debt. You are arguing that the emotional component of the process shouldn't exist, when in fact, for many people, it is a very real component.
The goal is to pay down the debt. If someone is able to accomplish that goal while following Ramsey's admittedly sub-optimal advice, when they weren't able to accomplish that goal while following the optimal methodology, why would you (or anyone else) find fault with that?
While you may not care about it and see no value in it, there are lots of people out there who DO care about it.
yeah? its not like im giving my opinion that it has no value, it is a fact that it has no value. its a separate check which takes a couple of seconds to add in an online bill pay account.
I think people who commit to following dave ramsey's advice can also commit and succeed in doing it the right way. its no so much the brilliance of the advice as the personal commitment that makes the difference.
yeah? its not like im giving my opinion that it has no value, it is a fact that it has no value. its a separate check which takes a couple of seconds to add in an online bill pay account.
I think people who commit to following dave ramsey's advice can also commit and succeed in doing it the right way. its no so much the brilliance of the advice as the personal commitment that makes the difference.
Again, I'm not sure why you would argue against the success that so many people have had following Ramsey's advice. Ramsey admits that "The Debt Snowball" is suboptimal from a purely mathematical perspective. But the reality (that you keep trying to deny) is that there are very real emotional/psychological components to how people address the problem of getting out of debt that go beyond the method that will save them the most money.
There are a lot of people that have been successful following Ramsey's advice. That you so vociferously argue against that is very strange.
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