Financial Debt Advice (Dave Ramsey)

[Jon B]

I just need someone to help me build an amortization table with my numbers for the our home. I went back into debt to build a few years ago and then Re-Fi'd into a 15 year. I'm tossing a bit extra at it but would love to see exactly what I need to throw at it to get it down to less than 10 years till pay off.

[M16]

Something that hasn't been mentioned is Dave is all about risk reduction. By paying off the smaller loans first you have reduced your monthly commitments in case something happens. Lots of folks losing jobs or being furloughed right now, not having that truck payment could be huge.

But doesn’t Dave say you shouldn’t have a truck payment? Sell the truck and pay cash for a beater?

[Jet Black]

Depends iirc. If you can pay it off fairly quickly then do so. But if it would take you years then yes sell it.

[RWB]

Appreciate the insight, lots of good points. I have never thought about the depreciation factor of the truck. I’m by no means upside down, probably owe $13k and a value of $25kish. I’ve also never been one to trade vehicles either, but i have tossed around upgrading this one.

I understand the motivation factor. My motivation is an amortization spreadsheet. Every month when I pay an extra $1,000 on the land note I see 3 payments disappear off the back end.

I appreciate the happy wife happy life comment. More can be said for that.

In reality your arguing a good decision vs a good decision. I would take that 1K put it toward the truck which probably pays it off in 10 months then put 1K + truck note back against the land. In the end your doing what you want and she wants all in 10 months.

[tpack]

Once I got rid of my ex-wife, I was debt free.

Best one yet. Some can pull a 120 lb. psi vaccume on a whole house. They leave the house and pull all of the furnishings out with them. True story.

[solocam_aggie]

Deciding the order of which debts get the extra principal payments also determines the amount of total interest you will pay on all debt. Retiring the higher interest rate debt first just allocates less of your total payment amount towards interest charges. You don't have the "physiological" pat on the back as soon as you would by paying off the smallest debt first but over the long run you will pay less interest. Simple math.

The Dave Ramsey crowd needs more of that "atta boy" feeling vs. what makes the most sense dollars wise.

There is more context to this situation, and not completely true. I for one sat down with a financial advisor and calculated the two scenarios out and found in my situation that paying the small loans off first, putting that entire payment savings plus the additional towards the big payment/interest loan saved me more money after 12 months. No brainer for me.

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[Throwin Darts]

There is more context to this situation, and not completely true. I for one sat down with a financial advisor and calculated the two scenarios out and found in my situation that paying the small loans off first, putting that entire payment savings plus the additional towards the big payment/interest loan saved me more money after 12 months. No brainer for me.

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You're saying that paying off the lower interest rate loan first saved you more interest?

[Troutamer]

There is more context to this situation, and not completely true. I for one sat down with a financial advisor and calculated the two scenarios out and found in my situation that paying the small loans off first, putting that entire payment savings plus the additional towards the big payment/interest loan saved me more money after 12 months. No brainer for me.

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Exactly! And you end up OWNING something a lot quicker. If you start with the higher interest one first in this case the op's land it takes him longer to pay off and longer to OWN anything therefore being higher leveraged for longer period of time.

[Hockley]

You know what an amortization schedule is so you’re already miles ahead of the people that Dave Ramsey is meant for.

A good way to look at is how much are you saving in future interest payments by paying extra on the land vs the truck. Paying off your truck tomorrow would probably save you less than $500 in interest, assuming you owe less than 5 years.

This^^^^

Just ran the numbers. If I paid the note off today, which I technically could with cash on hand, I'd save $305 in interest (33 months into a 60 month note). By paying my extra $1K on the land note, I save $1,145 after that one month alone. If I paid the extra $1K to the truck note, I'd save $210 over the life of the loan. Now I didn't go into the difference in calculating the bumping the extra land note payment up to $1500 extra once the truck is paid off, but I can't imagine it catching up.

Sticking to my plan regardless if the wife agrees or not!

Thanks guys.

[Throwin Darts]

Exactly! And you end up OWNING something a lot quicker. If you start with the higher interest one first in this case the op's land it takes him longer to pay off and longer to OWN anything therefore being higher leveraged for longer period of time.

Interest is charged on the outstanding balance of the loan. Reducing the outstanding balance on a higher interest rate loan while making only the required payment on a lower interest loan will reduce the overall amount borrowed (leverage) faster than doing it in reverse.

Put yourself in the banker's shoes. I have a loan on the books for 4% and one for 1.9%. Which one do I want my customer to keep the longest?

No need to go to a financial advisor. Its basic math. If the OP wants to post his loan details I can do the math on both scenarios in about 2 minutes.

[solocam_aggie]

You're saying that paying off the lower interest rate loan first saved you more interest?

Exactly what I am saying.

[solocam_aggie]

Interest is charged on the outstanding balance of the loan. Reducing the outstanding balance on a higher interest rate loan while making only the required payment on a lower interest loan will reduce the overall amount borrowed (leverage) faster than doing it in reverse.

Put yourself in the banker's shoes. I have a loan on the books for 4% and one for 1.9%. Which one do I want my customer to keep the longest?

No need to go to a financial advisor. Its basic math. If the OP wants to post his loan details I can do the math on both scenarios in about 2 minutes.

You're wiffing on the idea that by paying off the smaller balance loan, you are able to allocate more funds towards the higher interest loan. Whereas I had a grand of extra to pay on loans, I had $1500 after paying off the smaller loans.

[tobyb2007]

Exactly what I am saying.

Can you please show how this works out saving you more money in any situation


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[MLank]

You're wiffing on the idea that by paying off the smaller balance loan, you are able to allocate more funds towards the higher interest loan. Whereas I had a grand of extra to pay on loans, I had $1500 after paying of the smaller loans.

I'm having trouble picturing this. Can you throw out some numbers and interest rates that could be used as an example?

[Hockley]

No need to go to a financial advisor. Its basic math. If the OP wants to post his loan details I can do the math on both scenarios in about 2 minutes.

Truck note on Payment 34 of 60, 1.9% interest rate, remaining loan balance of $13,900.00. Month payment is $520. Beginning balance was $30K.

Land Note on payment 33 of 360, 4.0% interest rate, remaining loan balance of $180K. Note is a 5/10 ARM I believe without going back to look. I remember there were some max rates etc, but I'd have to go back and look for the exact details. Monthly payment is $1078 (beginning balance was $223K)

That enough info?