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As close to the Dave Ramsey plan as we can get

ok, so my husband and I have some money to pay off debts with. My husband thinks we NEED credit cards to have a good credit score. I disagree and had him listen to the cds and explained my thoughts, but whatever, he can't get over it. So we've compromised and already paid off and closed three cards and have three remaining, which are each paid down to at least 30% of the limit.

Anyway, we planned to pay down his motorcycle and our car, reamortzie both loans to lower the payments and have extra money to place in savings. Our car lender said they don't offer that service. We also learned that both our car and his motorcycle are approximately $5,000 upside down each :(

We are trying to come up with a plan to save us money each month that we can stash away to build up our 6 months of income savings. So, what would you do?

Our list of ideas:

Pay off (but not close) the last three credit cards and pay the motorcycle to where it is no longer upside down. They will reamoritize the loan to save us about $90/month.

Pay the car to where it is no longer upside down and refinance with our credit union for a lower interest rate and lower payment.

Take the money we would use to pay on the car to a dealership and get a smaller, gas efficient car, saving us on our weekly $80 gas costs, our car payment and potentially our insurance. (my husband leans toward this, but I'm nervous because it's getting a new loan)

Stash all this money in savings, bringing us to a little more than half of his 6 months income, keping our current bills where they are and working hard to pay off/save.

I'm open to other ideas too. Please help talk me through this :) I hope I gave enough info!

Answer Question
 
Anonymous

Asked by Anonymous at 12:48 PM on Aug. 21, 2013 in Money & Work

Answers (7)
  • Okay, not sure I followed everything with the car, but one thing to consider: I don't know how it is where you live, but where I live, if you own a car outright, you don't have to carry collision insurance on it. But if you have a loan, you do - even if the car is a piece of junk. So I'd do some more digging into whether or not another car would save on the insurance before you move forward with that plan. I mean, if you're doing it to save on gas and other reasons as well, great, but if saving on insurance is important to you, check into it and be sure of what it would do to your insurance.
    wendythewriter

    Answer by wendythewriter at 1:04 PM on Aug. 21, 2013

  • JulieJacobKyle - so what do you suggest? You're saying not to close the three we paid off or to go ahead and close those three, but keep the other open? My husband was calling today to close them, so they aren't technically closed yet. They are for Kohls, Zales, and Capital One- if that matters. The lowest limit is Kohls, but the Capital One account is more than 11 years old. Someone told me having an "old" account doesn't help. True or no?
    Anonymous

    Comment by Anonymous (original poster) at 1:10 PM on Aug. 21, 2013

  • I read the link, but I'm more confused now. I'm teaching myself all of this as an adult now, as I didn't learn from my parents or take any classes about being financially responsible. My husband and I had terrible credit when we met. I had credit cards in collections and repossession on my credit. He had 8 cards open to himself and all were close to the limit. We've worked our asses off to get where we are, but no one is guiding us and it gets confusing. Dave Ramsey's plan is to save $1,000 (done, plus some), pay off all debts except mortgage, save 3 months of your income for double working families and 6 months for single working families (that's us), then pay off mortgage. So that's what I was planning to do. But now that I'm reading that link and what you say, I'm not so sure.
    So I don't know if we should close the three and keep three open, keep 5 open, keep all 6 open. I want to build us up best I can.
    Anonymous

    Comment by Anonymous (original poster) at 1:23 PM on Aug. 21, 2013

  • Close the cards with the lowest credit limits. Keep the one that you have the longest history with. If you charge something pay off the card each month.
    silverthreads

    Answer by silverthreads at 1:32 PM on Aug. 21, 2013

  • You are not supposed to build your 6 month reserve, until everything is paid off, put $1,000 in the bank, pay off the car, the motorcycle, and the credit cards, but don't close them.
    They will just extend the length of the loan if you do a refinance, has anyone thought of selling the motorcycle? You need to get them paid down as quickly as possible, so right now pay off anything you can, and then add what you were paying monthly to the car and motorcycle, when the motorcycle is not upside down, sell it. If you are upside down in your car, it isn't going to save any money by trading it in.
    2kids2dogs2cats

    Answer by 2kids2dogs2cats at 2:06 PM on Aug. 21, 2013

  • well, I just downloaded a debt-income ratio worksheet and GASP! 49%. So, I've decided to pay off and close the three cards with the lowest limit. Pay all other cards down to $25, so I don't get charged any inactivity fees because I don't really plan to use them unless an emergency. We are going to pay down the bike so it's not upside down and re-amortize the loan. I would love to sell it, but my husband is attached, so it is what it is. But it will at least help with bringing down the monthly payment for now, lowering our debt to income ratio and we can make close to double payments on it to have it paid off.
    Now to decide about the car......refi or trade in......hmmmmm. I guess it would depend on how much lower we could get the payment either way to make it worthwhile. Thanks all!
    Anonymous

    Comment by Anonymous (original poster) at 2:22 PM on Aug. 21, 2013

  • I'm new and just found this- My family used Dave Ramsey and we have been debt free for 3 years now (except our mortgage which we have paid almost half of in 5 years). I would ask, do you need the motorcycle? Please don't misunderstand- I would look seriously at selling it by owner. Put everything you can on the loan and then continue paying the remaining balance. Not having to pay that insurance, gas, etc will help. I would also recommend stop using the credit cards. Your third idea has merit but I would ask, are you selling your other car? Adding debt to get out of debt doesn't really make sense in my book. I would just stress that you look for ways to cut costs in other areas to put towards the debt. (lower cell phone bill, utility bill even pay programs, eating out less, etc) I hope that helps. :) good luck! It is a rough road at first, but the freedom is definitely worth it!
    howe2dance

    Answer by howe2dance at 1:41 PM on Oct. 16, 2013

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