One of the things I hear from people from time to time is I have enough in checking or savings to pay off all of my debt. And my response is always, then why haven’t you?
In my late twenties, even though I was making so called “good money” I had still accumulated some credit card debt. I honestly can see how people can get in to trouble quickly with a credit card if you don’t watch it. I think I bought a bike for like $500 dollars and I had to get the helmet and the better seat as well. I think all in all I was in the deal for about $700 dollars.
Then I think I went on a couple of trips and paid for it with the credit card. I might have had about $1,500 dollars in credit card debt accumulated.
Meanwhile, I had about $15,000-$20,000 saved between my checking and savings account.
So why was I spending this money on my credit card? It was really dumb looking back on it. I think I felt some kind of safety or something with having the money in the bank. I am not sure.
At the same time I also had some student loan debt. I was making extra payments every month and really throwing large chunks of money at the debt whenever I could.
I eventually got the student loan debt amount down to a number that I could now actually write the check for the remainder of it.
I had this student loan debt to a good number and I had this little bit of credit card debt. I was listening to Dave Ramsey one day. If you don’t know Dave Ramsey, I encourage you to go to his website. He helps people manage their money and is one of the most successful business guys on the planet.
He was talking to one of the people who called in to the show that airs everyday. And like all of the people who call in they are looking for some advice or confirmation from Dave on money issues.
Dave has seven baby steps on how to get out of debt. Dave doesn’t consider your house payment as part of the debt. He is focused on consumer debt. Student loans, credit cards, car payments, etc. He doesn’t include your house payment or rent payment in the first three or four baby steps. Unless there is a way to cut your rent payment or if you bought a house you can’t afford.
The first step in the baby steps is to save $1000 dollars for an emergency fund.
The second step is to start paying off all of your debts starting with the lowest dollar debt first. Again, if you are not familiar with his teachings I encourage you to check out his site and products, he has helped millions of people get out of debt.
This is where I think I got hung up and Dave talks about this at length. The purpose of the $1,000 dollars, although it is an emergency fund. It should scare the hell out of you that you only have $1,000 dollars saved. That’s part of the point. He wants you to be so scared that you work your ass off and stay committed to paying off your debt.
So as I am listening to him talk to this caller that day. I can’t remember all of the details with this caller, but this person and I were similar. We both had some debt, but we also had some money saved up.
Dave told the caller to write the check and pay off the debt. Just like me this caller pushed back some and said that they have enough in savings to cover the debts. And
Dave once again challenged the person and said “Why keep the debt if you can pay it off?” “Pay it off”, he said.
I am guessing I had heard that advice before that day, because I was a frequent listener and learner from Dave and all of his teachings.
That day though it just struck a chord with me. Write the damn check, don’t carry consumer debt that you don’t need to. Period. I paid off my student loans and the little bit of credit card debt I had and I have never looked back.
I think I might have had $3,000 left in the bank after I did this. But I knew that I no longer had those payments, which meant I could save money even faster now. This one little principle of write the damn check has served me ever since.
If I can’t write the check for whatever it is, I don’t buy it. (except income producing real estate, Dave disagrees with this by the way). He is an absolutist on no debt. But if you hear his story you might be as well.
We don’t buy cars unless we can pay cash. We have an American Express that we run our household on. Am-Ex requires that you pay it off every month.
If you are in the situation I was in. Which is not a bad one. I would encourage you to write the check. The feeling it will give you once you are down the road from that decision is amazing.
To your success and your future.
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