Dave Ramsey: Snowball switch?
Dear Dave,
We’re working the debt snowball, and together my husband and I make $93,000 a year. The amounts of our remaining three debts are so close we wonder if we should take interest rates into account. Two are student loans for $2,970 and $6,700, while the other is credit card debt in the amount of $4,750. I also got a recent bonus of $3,600. Should we put that toward our debt snowball?
— Robin
Dear Robin,
In a strictly mathematical sense, my advice of paying off debt smallest to largest may be wrong, but it’s still the correct advice. Besides, if people were so good at math they wouldn’t have debt in the first place, would they?
If I’m in your shoes, I’d have that lowest student loan paid off in a heartbeat with the bonus you mentioned. I’d throw the remainder, along with your regular snowball payments, at the credit card and keep the debt snowball rolling just like I normally advise.
When you’re pushing to get out of debt fast, interest rates don’t really matter much when you add up actual dollars on interest spent. If you were going to keep debt around for six or seven years, then we’d have something to talk about. But when you knock out the little debt and immediately plow through the others with a vengeance, it gives a real sense of accomplishment and confidence. Remember, personal finance is 80 percent behavior and only 20 percent head knowledge.
So, mathematically speaking, the advice I’m giving you might be a few dollars wrong, but you’ll benefit in other bigger, long-lasting ways by gaining a sense of closure on your debts, learning how to delay pleasure and staying on a plan.
—Dave
It’s not discrimination
Dear Dave,
I’m in the middle of a Chapter 13 bankruptcy. I’ve worked for years in the automotive industry, but lately I’ve been thinking about a different line of work. The problem is I’m afraid I will be discriminated against when applying for jobs because of the bankruptcy filing. I think the government has given businesses the permission to look at my financial history. Do you have any suggestions?
— Joe
Dear Joe,
The government doesn’t give businesses permission to look at your history. They had that right anyway. And it wouldn’t be discrimination, because it’s a part of their analysis as to whether or not they want you working for them. That kind of thing is perfectly reasonable. It’s not discrimination.
A lot of this, however, depends on the job and how seriously the employer is considering you. If you’d be doing something where you have to be bonded, then you’ll have trouble because the bankruptcy can prevent you from being bonded. If you would be handling large sums of money or be given access to large sums of money, the Chapter 13 bankruptcy would reflect poorly on you and make you a higher risk.
Just be honest and disclose it, Joe. If they ask questions, explain things truthfully and the reasons behind why it happened. Also, don’t carry around a chip on your shoulder about the bankruptcy. We all make mistakes, and the smart ones among us learn from them. I wouldn’t necessarily have an issue with someone just because they had filed bankruptcy in the past, but it would create problems if they tried to hide it from me.
—Dave
— Dave Ramsey is America’s trusted voice on money and business, and CEO of Ramsey Solutions. He has authored seven best-selling books. The Dave Ramsey Show is heard by more than 11 million listeners each week on more than 550 radio stations and digital outlets. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.