Date: Wed, 18 Aug 2004 12:41:05 CST
From: BreadWithSpam@fractious.net
Newsgroups: misc.invest.financial-plan
Subject: Re: Credit related formulas
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"Gene E. Utterback, EA"  writes:
> "John A. Weeks III"  wrote in message

> > Method A - sort your debts in order of interest rate.  Pay off
> > the highest interest rate first.  When done, use that money to
> > Method B - sort your debts in order of current balance.  Pay
> > off the smallest balance first.  When done, use that money to

> Just an FYI - have you checked out Dave Ramsey at daveramsey.com?  He is a
> big proponent of being debt free and has what he calls the 4 baby steps:
> 1 - get a $1,000 emergency fund set aside
> 2 - cut up and pay off all credit cards - using Method A from above

Just a small aside or two - 
(a) Method A vs. B shouldn't make a huge difference, though
    if the balances are substantial, then B has the potential
    to save you a lot of money.

(b) I'm always wary of "cut up your credit cards".
    Definitely pay them off, but if you cannot control
    your spending such that simply having a credit card
    and paying it off in full each month is not an option,
    there's a real discipline problem here that just
    cutting them up will probably not solve.

(c) Having and using and paying on time a credit card is
    in general a _good_ thing - keeps a recent and up-to-date
    credit account on the records and offers valuable
    convenience, as well as the ability to engage in
    certain transactions (ie. car rentals, buying things
    on the 'net, etc).  Credit cards are not evil, they
    are tools which can be used or abused, just like
    most other tools.

(d) that all said, an audit of one's credit cards is
    probably a good idea.  At the moment, for example,
    I've got and Amex and two Visas.  All have rewards
    programs, but I really ought to dump one of the
    Visas, since it's a miles card for which I pay
    an annual fee and I just don't need the miles.  But
    two or three cards is a reasonable number - when
    one of my cards was shut off a couple of months due
    to somebody stealing the numbers and engaging in
    fraudulent transactions, it was very helpful to
    have another on hand (I found out about it being
    shut down while actually at a register in a store!).

> 3 - increase the emergency fund to 3 to 6 months
> 4 - pay off the house and invest

And, of course, 4 is always a topic for endless discussion.
Ie. whether the order ought to be "invest and then pay off
the house" or vice-versa...

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