"People who do math don't have credit card debt."
 

I paraphrased that from Dave Ramsey. I believe I got my quote from a page where he says he used to tell people to pay the highest interest rate first, but people do not do math, if they did the math, they would not have credit card debt, so he tells them to pay the smallest debt first.

Ad nauseam.

I feel like those of us on Ecomodder evaluate things better than average and, when necessary, do the math.

I do math in my head throughout the day.

I also have credit card debt.

I constantly reevaluate my plans to stop paying debt and start earning it.

I wish I had a nickel for every time someone tried to convince me to use his snowball method.

I would throw them at the next person who tried.

Sure, yeah, he is a genius. Okay. The thing is...

I did the math.

A bad plan is generally better than no plan and his plan is pretty good, but it is not perfect.

People insist I need to do that because some guy they do not know says to. I tell them that paying the highest interest rate pays off my debt faster and saves me more money and either they repeat I need to listen to someone they don't know, or they condescendingly say "Well, if that is what you need to do to feel better about yourself..."

Yet many people describe the debt snowball as something people need to do to feel better about themselves.

I am not sure what other Ramsey advice I have heard, but I definitely believe in living within my means.

What do you guys think? Are there things he has said that you liked? Do you disagree with any of his suggestions? Is there anyone you happen to like better?

I welcome your feedback! :)

Have a great day! :)

The idea behind paying off the lowest balance first, like Dave Ramsey suggests, is to get results fast, which keeps people motivated. If you focus on a higher interest account with a high balance that'll take a long time to pay off, many people will stop putting the extra money towards it and return to just paying the minimum. If they can knock out a lower balance card in a few months and carry on to the next one, it'll give results that are more visible and help them stick with it.

No matter how you do it, the snowball method is much better than just paying the minimums. The trick is sticking with it.

Ramsey's plan is pretty good for most people that don't want to get too involved in their finances. It might not be the optimum plan, but at least it's a good enough plan and probably better than what most people are already doing.

Imagine me throwing nickels at you!

I had ballance due at the end of the month on and off till 2013. From then I would select "pay full ballance" once or twice a month. I have recently started again getting ready to move out of the city.

From what I have seen, Ramsey advocates avoiding credit whenever possible, and he argues that you do not need a good credit score.

I happen to have one and it seems to present many opportunities I would otherwise be missing, although all that I have done with it has been to get a credit card with better terms.

I do not know what he says about juggling credit cards, but I figure that if the 0% introductory rate helps me pay off my debt faster, so be it.

I would not have as favorable terms if I had a lower credit score.

The problem with economic theory in general is that it assumes the consumer is "rational", that is, they make the best decision based on the available data. In reality, individuals make emotional decisions and behave irrationally.

All things being equal, paying the highest interest debt obviously makes the most sense. Given that many people lack the motivation to exercise financial discipline, paying the lowest debt may be the best strategy for some.

Ramsey's perspective is mostly informed by his unfortunate experience in over-leveraging credit (too much borrowed money), having his debts called (banks requiring debt be paid off in short notice), and ultimately losing his investment properties when he couldn't pay. There is risk of a domino effect when leveraging debt because 1 lender can feel uneasy, call their debt, and that in turn triggers the other lenders to call their debts. It's the opposite of a bank run.

That said, most people aren't financially literate, and even worse, have no interest in becoming financially literate. Ramsey has strategies that uninterested debtors might find interesting enough to practice, and improve their situation.

Mr. Money Mustache is for people who are interested in financial literacy.

As an aside, I've never paid interest on a CC even though I primarily pay with them. I was putting $10,000 on a CC every 3 months to pay my wife's tuition, and banking the 2% reward.

There is a strategy for investing credit card debt called the "App-o-rama". The basic idea is that a person applies for many credit cards at once that offer no interest terms and/or cash incentives. During the no interest period, they monetize the credit and place the money in a safe, interest-bearing account such as a rewards checking account. At the end of the free interest period, the card is paid off in full, the investment interest is kept, and the process is repeated.

So where do you find a checking account that pays more than token interest these days?

But I've been doing the 0% interest credit card thing since '08, one card at a time. Spending goes on the current card, which is paid off just before the 0% period expires, when I get another 0% card. Meanwhile the money I'd normally spend to pay the card in full each month sits in an index fund.

This is how credit cards should be used if you're going to use them. I use mine like debit cards that end up paying me $20-30 a month in rewards. You don't need to carry a balance (pay interest) for them to help your credit (though I've read that having a small statement balance is better than having nothing on the statement).

If you don't want to use the snowball method, then what strategy do you use?

They get a cash advance? Or just use it to invest?

My new credit card is supposed to have triple the limit of my current one. I believe I had been considering something similar, earn interest on credit while it is interest-free, and then pay it off and keep the profit.

I do not suppose Prosper is the best place to look?

The only place I remember seeing the phrase "financial education" is Robert Kiyosaki, and I spent hours reading everything I could about him and his advice.

I felt like it was like reading horoscopes, intentionally vague, but supposed to sound specific and useful.

VSKid, I pay my debt with the highest interest rate first, then apply that payment to the next-highest interest rate, and so forth.

he says you don't need a credit rating because you don't buy unless you pay cash. period.

Look, you keep grabbing 1 thing and complaining about it.
It's a system. a du[plicatable system. a simple to describe system. a successful system.
It is not a perfect system or a complicated system.

Fine, your smart and can figure things out. your system is not any of the above.
:thumbup: