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![]() And lastly, give. Man, giving is fun. I can’t wait to give like crazy! My big goal is to be able to go out to dinner with Barry and leave HUGE tips for our waiter/waitress. J I love seeing the shocked look on their face as you walk out the door. Imagine what a difference you could make in someone else’s life…..all because you’re debt free. Can you see it now? Imagine how it feels to be debt free? Your grass will feel different when you walk through it……you won’t worry about paying for vacations……..you won’t worry about leaving your kids with nothing. |
Also, I know this money thing is a big scary monster to lots of you. If you have read all this and still feel overwhelmed or need some help with planning your finances, send me an email. There are lots of other resources out there I can point you toward and, depending on your situation, can help you get connected with a financial counselor. I hope you enjoy reading this series as much as I enjoyed writing it for you. |
Disclosure of Material Connection: Some of the links in the content above are “affiliate links.” This means if you click on the link and purchase an item, I may receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. I am disclosing this in accordance with the Federal Trade Commission’s 16 CFR, Part 255: “Guides Concerning the Use of Endorsements and Testimonials in Advertising.”
Comment Policy: I love reading your thoughts and input on what you read here. I'm sure we'll disagree sometimes and that's okay! In those cases, do what's right for you and yours. As with any form of communication, only post comments that move the discussion in a positive direction.
I was reading this and thought to myself, wow, Barry writes alot like Stacy, and then I see it IS Stacy writing 🙂
Quick question: I know the post talks about not paying down mortgages until we have 3-6 months saved up, but we have a mortgage at 6.5% on a rental home, where the PMI will drop off after it reaches 80%. We plan to sock away at that one until the PMI comes off, and then the property will be “less of a negative cash flow” than it is now; we’re not planning on keeping the original mtg pmt to that payment, but that $92/mo to the other debts–this one seems like a no-brainer.
Meanwhile, we have a secured LOC (the 4.5% var APR one) that is secured by our 3-6 months savings in the form of a 1-year CD–it was set up as secured until we earned a reputation and history with this bank, which should be accomplished as it’s been 2+ years. Because our 1st mortgage on our residence that we’d like to sell (and we’re a little bit upside down on) is at 7.25%, would it make sense in our situation to sock down on that before paying off the other “credit” line? As it stands, if we are able to sell it in the next several years, we’ll still have to bring a significant bundle of cash to the table…
Thank you!
Why do you own rental property with a mortgage? Although common, it sounds like that’s a risky proposition in your situation. I believe rental property is a great investment if it is paid for. Otherwise, I’d sell it and wait to buy property for a later date. That being said, and to address your original question, I believe you should still pay down the credit line first, despite the higher mortgage interest rate. Your goal is to get rid of payments entirely, not just save a little on interest rates/payments. Since you didn’t tell me the balances, I have to assume the LOC is a lot lower balance than either mortgage. If that’s the case, the LOC goes first. That frees up your emergency fund to be what it is really supposed to be (an emergency fund), and it frees up a monthly payment that can tackle other issues. Without a crystal ball, that’s the safest play and thus the one I’d make.
Barry, you and Stacy are so prompt with your replies! The rental property is a condo that I owned before hubby and I were married, and I moved to another town to marry him, and we bought a house in which we now live. Unfortunately, even selling the townhome is a non-option at this point–we’d have to bring cash to the table, because the market is so poor there that it recently appraised at less than I paid for it eleven years ago, and I don’t have to tell you that the balance on the original note (95% of purchase price at the time) is CLOSE to 80%, but we’ve got a couple extra payments to go. Using our entire snowball amount, we’ll be below 80% in 2-3 months. We’ve continued to keep our thumb on the pulse of the market, and still the market has not recovered enough to sell, because there is a downpayment-assistance loan (that was supposed to go away, but when the tide turned in 2006, it became a permanent loan and now has to be repaid… Yeah, yeah, I’m a servant to the lender!) as well, and to pay off the 1st and 2nd at this point wouldn’t even be covered by the sale price, and that’s before we make any sellers considerations or realtor fees.
Regarding my original question, the balance on the LOC (about $20k) is the same amount as we would have to bring to the table to close on our residence, if we were to sell it in the current market. As we haven’t been late on any payments, we don’t want to do a short sale, but we do feel that we could pay down the current balance a bit and not have to come up with cash at closing in order to sell next summer; if we pay down the LOC, we have less equity as we go into a sale, and no cash on the table; we’d (GULP) have to consider cranking cash out of the LOC in order to have cash on the table if that was where our extra goes now. We do believe that the emergency fund/CD could be withdrawn without penalizing the LOC at this time (I know, we need to find out for sure!)
Of course, we recognize that God is in control (well, He is NOW. He obviously wasn’t controlling our actions when we blindly got in over our heads) and may just bring a generous buyer or some other blessing–we never know how He’s going to work until He does–so we’ll continue plodding. “Steady plodding brings prosperity; hasty speculation brings poverty” (Proverbs 21:5, LB) We were a bit hasty, and now we HAVE to plod! Thanks so much for your advice!
It sounds like you have a workable plan laid out, although I’d still be very cautious about tying up your emergency fund as collateral support for ANYTHING. If a real emergency comes along, things would be way more complicated. The ultimate goal (as you know) is to avoid the LOC entirely because it is another payment. The goal = no payments! I’m always glad to give my opinion ;0) (aren’t we all?). If either of us can give additional input, let us know.
I like the snowball effect. It’s much easier to envision yourself paying off a $300 credit card when compared to a $3000 one. I like the feeling of saying one down and such and such to go! Even though it may cost a little more interest it doesn’t discourage.
Thanks for sharing this Stacy. It’s a real eye opener for many.
Ok so I have to put my 2 cents in on this one because Justin and I had a HUGE argument about the debt snowball part. I really don’t have to mention it but I won, of course! I know Dave Ramsey wants you to put the most money toward the smallest balance to encourage you to keep on going. I, however, am extremely logical and know my math (I’m a math teacher) and I just could not stand paying a ton of interest. I refused to pay off a small amount credit card that had no interest (I was going to pay it off by making the minimum payments before interest kicked in anyway). I instead made the largest payment to the highest interest card. It doesn’t create the “snowball” effect but the end goal is still accomplished – credit cards get paid off.
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This doesn’t work for everyone. Dave deals with TONS of people, so he does what works best. I agree with him. The amount of interest that you’d save isn’t worth the amount of pride and momentum that you gain when you start knocking those debts out.
Thanks for your “Two cents.” 🙂
I am with you. Statistician. Highest rates go first.
But if math were the sole issue, you wouldn’t have signed up for credit cards at the ridiculous interest rate to begin with. It isn’t a math thing, it is a behavior thing.