Get Out of Debt June 2010 - Page 4

[Softmama]

lunarlady- I think the reason that DR does it with smallest loan first is based on the theory that money is not just math. If it was just math nobody would be in debt in the first place. Once you add in the human, you are dealing with math+emotions+habits etc. If it was just math, paying by interest rate would work. But add in the human and it most likely won't work. humans NEED to see some small victory in order to continue with a habit change (which is why most diets start you off with something that will make you loose a ton of weight that first week, to get you hooked on the victories etc). So you need the victory of completely eliminating one debt to keep you going with your new habit of saving and not borrowing money.
And remember your little snowball gets bigger once you knock out that first debt and all that money is now going to your second debt.

edit to add: I caught about 15 min of Oprah yesterday. They were doing something on debt. The expert said that paying off the smallet interest loan first is "old advice". I don't know if you can still catch that episode somewhere?

[major_mama11]

I agree with those who are discussing keeping a bit more in savings, and not following the DR method to the letter. I try to keep at least around $5k in savings at all times, because just in the past few years we have had several expenses (such as needing a new transmission), that very quickly burn through well over the $1000 DR recommends for emergencies. In my experience, a lot of emergencies are way more expensive than one grand! Heck, we had to spend $6k out of pocket on medical expenses in 2009 alone, due to our insurance at the time barely covering anything towards DS's birth, newborn hearing screen (over $600 OOP for that alone ), etc.

I like the idea of using cash envelopes divided out by week, instead of one of each category for the whole month! I was doing the cash envelope thing last year, but fell out of the habit due to my inability to stick to the amts budgeted. Maybe I would stick to it better having one for each week. I'll have to give that a try.

My good news is that I got the job I applied for! Same amount of hours that I've been working (actually, LESS than the amt of hrs I've been working), same dept, only with benefits. I'll have to work nights again, which I hate, but I'm willing to do it to get the health coverage. I think it will take a huge mental burden away, knowing that we have good health insurance again, rather than the crisis-only coverage that we have currently. I've been nervous about getting pg too soon, since we had zero maternity coverage on DH's plan. Now I won't be so stressed about it. We'll have vision insurance again too, so I'll be able to go get new glasses for the first time in 4 years!

[dizzysmom]

Hi everybody! I'm new to MDC but we've been on the Dave Ramsey plan since the middle of January (figured out our first budget about two hours after we found out that DH's normal winter layoff was going to be permanent this time around). We've hit a snag in the last month and our plan is now on hold temporarily as DH's regular unemployment benefit has ended and the emergency benefits have not been extended So it looks like we'll have to tap into our emergency fund until he can find something.

In the meantime, I'm trying to trim our budget as much as possible. It's hard for us, as neither of us are savers by nature. I'm trying to get started with couponing, and I'm really hoping the garden will turn out well so I can learn to can!

[mtm]

welcome dizzy, sorry to hear about the layoffs and slow renewal of benefits. Let us know if you want a second set of eyes for your budget or have any questions.

Everyone else, woo hoo, june is almost done. Lets end this month on a high note.

[sarah1122]

Thanks for all of the input. I think we've decided to leave our 10K in place for now, but we'll probably dip into it when we're closer to finishing our snowball a few years down the line.

lunarlady, I had similar thoughts about the interest rate issue. We have five loans at varying interest rates. We're mixing things up and paying off some of the highest interest stuff first, then a smaller loans with a lower rate, then the two big loans that are going to take us awhile. So we have a mix of paying off higher rates first with getting some early victories....I think it really is all a matter of personality.

And I think leaving paying off the house until much later makes sense (as per DR's oder of steps). I know in our situation it would probably take us 10-15 years to pay off our mortgage...but then our kids would be approaching college age and we'd have nothing for their educations. We'd have a paid-for house and we'd end up going back into debt to pay for school for the kids...which just makes no sense IMO.

And another question. We just "discovered" a life insurance policy that DH was paying into at work before we were married. It is worth about $9500 if we roll it into a Roth IRA and about $8200 (before taxes) if we cash it out. Put it toward the debt? Leave it as is? So tempting to take the $$$, but it will lose thousands if we cash it out between the penalty and the taxes.

[MyTwoAs]

Sarah, is the life insurance policy tied to an IRA or retirement account? If so I'd roll it. If not what are the tax implications of it? I'm not very familiar with whole or universal life policies (those that have a savings account built in) but your money may be put to better use in an avenue that you can control (i.e. the Roth).