Comments on: The 3 Ms to Paying Down Debt

By: Neil Tantay

Neil Tantay — Thu, 01 Apr 2010 04:09:47 +0000

I have personally tried both methods, paying off smaller debts for motivation and paying off higher interest first. In my opinion, I prefer paying off smaller debts first because getting that feeling of putting a credit card debt to 0 is satisfying. It also gives you the feeling that you can do it again for the next debt and you’ll gain momentum in saving/budgeting correctly.

There’s different ways to motivate people so find out which works best for you.

By: Oscar t Real Life Money Mangement

Oscar t Real Life Money Mangement — Sat, 13 Mar 2010 15:01:03 +0000

These are some really big points. When it coms to motivation, if you don’t want to do it and don’tcommt yourself to it you wil never pay off your debt. The snowball cocept really works well too. It can be tempting to pay off higher interest debt first but stay comitted to the snowball concept and it wll pay off in the long run.

By: Jeremy Johnson

Jeremy Johnson — Thu, 25 Feb 2010 05:36:34 +0000

I am fortunate to only have my house and four years left on a car as my major debt. Thankfully I have a wife who shares the same views I do on money and that is to invest first, save second, spend third.

What really turned me around was figuring out exactly what was coming and going each month and then making decisions to make sure I spend less than I earn.

I love the three tips here as well. You need motivation, money, and a method. My motivation is I want to retire and live. My money is what I invest each month. My method is spend less than I earn, and invest what’s left.

By: Jeff Walden

Jeff Walden — Fri, 12 Feb 2010 12:05:04 +0000

I’m curious why you think I’m “full of [myself]“. I merely suggested that paying it all off immediately sometimes may not be the right strategy if your immediate opportunities are good enough — but it’s a personal question to which different people will have different answers. If I were full of myself, wouldn’t I have said everyone should do exactly as I did?

Or was that in response to the economics terminology quibble? If so, I confess that I have a bit of the economics wonk in me, and I like to see terms used in precise accordance with their generally-understood meaning. Imprecision just muddies the waters for people familiar with the terms. I’d rather see a clear, longhand description that doesn’t use a term, if the alternative is a shorthand that slightly misuses a term.

By: Belle

Belle — Sun, 31 Jan 2010 00:13:05 +0000

Dear Stacy,

You rock! Thanks for sharing your knowledge and your life experience.
You have helped me to continue on my path to financial freedom.
These two other comments from Bryan and Jeff…well let’s ignore them they are super full of themselves….but Mr Heretic is also a great motivator. Thanks so much for sharing.

By: Juanita

Juanita — Sat, 30 Jan 2010 15:34:48 +0000

Good article but i think you lost steam on the third M, the METHOD. Its equally as important. if you dont have a good method, you may never escape your debt. You could have told readers there are two main methods for paying off debt. The first is officially called the snowball method http://en.wikipedia.org/wiki/Debt-snowball_method where the card with the smallest balance is payed off first. The only point in doing this is to keep the motivation climbing when it is the lowest at the beginning. The second method is actually cheaper and faster but provides no emotional satisfaction. I dont know if it has an official name, but it involves paying off the highest interest rate card first. You can use a calculator such as this http://cgi.money.cnn.com/tools/debtplanner/debtplanner.jsp

By: Juanita

Juanita — Sat, 30 Jan 2010 15:29:45 +0000

congrats! you give me hope cc debt = 46K+ in june 2008, currently 32K. on track to be out of debt in 3 years. I lost my job this year too, found another one. still driving my 10 year old civic.

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By: Jeff Walden

Jeff Walden — Mon, 25 Jan 2010 10:24:20 +0000

The flip side of the pay-it-off-early coin is, again, opportunity cost. (Incidentally, your use of the term seems the reverse of its normal uses; I’ve usually seen it used when considering a “normal” course of action versus a special opportunity.) If you have high-value opportunities only available now that require that extra money, the cost of missing such opportunities may outweigh the cost of extra interest payments. For example, I delayed entering the workforce for five months after graduating from college to thru-hike the Appalachian Trail. I’ll pay extra interest on student loans for that choice, and more notably I’ll miss half a year of extra compounding of retirement savings and other accounts where I might have invested that money, but the opportunity cost of starting work (and loan repayment) immediately was too great to do it, no matter how much — on paper — it may have made sense.

Of course, once that opportunity finished, I immediately began work and loan repayment at a rate much faster than that dictated by minimum payments (perhaps too fast, actually, given the loan’s interest rate and my other goals). I’m not saying what you suggest is *always* wrong — just that it’s quite possibly wrong for *short* periods of time, or even perhaps long ones if your opportunities now and well into the future are sufficiently compelling.

By: Bryan

Bryan — Sat, 23 Jan 2010 08:58:01 +0000

Your description of opportunity cost is incorrect. You’re in the ballpark, but not quite there. 1st- its not an accounting concept…its from economics. 2nd- A better description is that because money is a fixed resource (ie- you can’t print your own) whatever you do with any given dollar requires you to not be free to spend that same dollar on something else. Time definitely has an opportunity cost as well. Otherwise, this is a great article.

By: The Heretic

The Heretic — Sat, 23 Jan 2010 01:10:53 +0000

About 15 years ago I was laid off and could not afford to make the payments of my debt (over $40K in unsecured debt) despite having UI benefits. I borrowed enough money from my family to tide me over until I got another job, but at that point I vowed to not let it happen again.

That was my motivation – the freedom from debt is also the freedom from worry about job security. To be truthful, I still worry, but just much less, especially now that I have two years of living expenses readily available (not including retirement funds). I am also motivated by the ability to take risks with my career by taking positions I am more happy with, even if the organization is not stable.

Moreover, as you mentioned, costs of goods is much less when you do not have to pay interest on the item because you borrowed money to purchase it. This allows you to have a higher standard of living – but requires some patience and sometimes a bit of sacrifice; I drove around a beater Toyota for 4 years until I could pay cash for my Bimmer.

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