October '06, Questions from the Field
The key principle here, that is so often overlooked, is this habit of continuing to write the check even though the debt has been paid. It is the key to maintaining your current standard of living.
Dear Coaches:
Should I take money in my wealth account and pay off loans and leases, along with using my debt account. My reasoning is to pay off the debt and interest, to get rid of the interest. For example if I pay off SBA loan that the interest is 12.5% by using my debt account and my wealth account, do you think that is a good idea.
Thanks, Dr. R
Dr. R:
No! You will do like I did and experience “Debt Reduction Stress”; worse yet you will be a ZERO! You may pay off debt sooner, but you will be cash poor and have nothing to show (saved) for your troubles!
When you mention your SBA loan at 12.5% I’m assuming that this is your next smallest balance debt to pay off Remember, always pay off the smallest remaining balance 1st! Once you get all the small stuff cleaned up the larger ones move along pretty quickly as long as you continue to make the same payments you were making before to your debt reduction account. For example: You pay off your car loan at $450/mo, that same dollar amount continues to be written every month. But now it’s written to Dr. R’s Debt Reduction Account and not to GMAC. As these small debts get paid off and the payments continue to grow, the amount deposited in the debt reduction account grows pretty quick. Then save up 5-10 K and write a nice check on the outstanding balance. A few of those and that debt will be gone too.
The key principle here, that is so often overlooked, is this habit of continuing to write the check even though the debt has been paid. It is the key to maintaining your current standard of living.