That goes right back to what we said earlier about trying to dig yourself out of a hole. Why would you take on more debt to pay off your debt? When you read that title on its own, it seems crazy. Plus, you want to keep that money invested for your retirement-not use it to pay for the mistakes of the past. By the time you add all that up, it’s not worth it. You’ll get hit with penalties, fees and taxes on your withdrawal. Never cash out or withdraw money from your 401(k) to pay off debt-unless you’re trying to avoid bankruptcy or foreclosure. Usually, they just take your money and leave you responsible for your debt. Companies will charge you a fee and then promise to negotiate with your creditors to reduce what you owe.
With the debt avalanche, the first payoff takes so long to get to, your motivation can die out quicker than a campfire in the rain.ĭebt settlement companies are the seedy underbelly of the financial world. A quick win is motivating and keeps you going. But the problem isn’t with the math, it’s with how we’re wired as humans. The debt avalanche, aka debt stacking, is when you pay off your debts in order from the highest interest rate to the lowest, no matter the balance.
#Budget dave ramsey plus#
To sum up: Stretching out the amount of time you’re paying off debt, plus adding interest, equals a bad deal. until you find out the life-span of your loans increases, meaning you’ll stay in debt even longer.Īnd the low interest rate that looks so appealing right now-guess what? It usually goes up over time too. And never go back.ĭebt consolidation is a way to combine multiple debts into one single payment.
It does you no good to bust your butt paying off debt just so you can get back in debt. When you decide to pay off debt, that means you’re breaking up with debt. You’ll never climb out of a hole if don’t stop digging. Like a snowball rolling down a hill, the amount you’re paying on your debt grows in size and gains momentum with every debt you pay off. Repeat until every single debt is gone.Once the smallest debt is gone, pack that payment (and the extra money) onto the next-smallest debt and pay it off.
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(We’ll dive deeper into this in the Tips for How to Pay Off Debt Faster section.) This includes the money you freed up when you were budgeting.
Attack that one with all the extra money you can get.
But listen, this isn’t a moment of defeat-it’s the first step to victory! You can defeat your debt. If you want to pay off your debt, you’ve got to face the truth of your total debt amount.
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