Debt comes and goes for most of us, but for some, it hangs around long past its welcome. If you’ve been spending all your money on loan and line of credit payments for what feels like forever, you might need an expert’s opinion on how to kick debt to the curb.
Borrowing Money is Normal; Chronic Debt is Not
Borrowing money is a normal thing most people do for a variety of reasons.
Years from now, you might choose to own your home rather than rent; most people need a mortgage for that.
Tomorrow, you might need help replacing your car’s brakes; without savings, you might have to explore your digital borrowing options for an emergency line of credit.
Eventually, you might even have to take out financing to get a replacement car when your old one fails its tests.
While taking out a mortgage, auto financing, or line of credit is normal, letting these accounts hang over your head forever isn’t.
Debt that’s long-lasting or takes a large portion of each paycheque isn’t sustainable. With your money tied up this way, making any smart money moves of your own is hard.
Meet the Experts: Who Can You Look to for Advice?
Dave Ramsey, David Bach, and Suze Orman consider themselves the authorities on personal finances. Together, they have nearly 100 years of experience helping others with their finances. They’ve helped countless borrowers identify better ways to tackle debt.
Dave Ramsey knows all about debt. In 1988, he had to file for bankruptcy because he overleveraged himself using loans and lines of credit when building a $4-million portfolio.
Using his own personal experience as what not to do, Ramsey has since gone on to build a personal finance consulting empire. Now a New York Times bestseller and radio program host of The Ramsey Show, Ramsey recommends following the debt snowball method.
This method focuses all your extra debt-paying powers on the account with the lowest balance while making the minimums on everything else.
Research shows the snowball method increases your chances of eliminating your debt. That’s because closing that first account can keep you motivated during a challenging financial time.
David Bach has made appearances on The Today Show, The Oprah Winfrey Show, and Larry King Live. Although he’s had multiple New York Times Bestselling books, he rose to fame in 2019 when he published The Latte Factor, which proposed small purchases (like a daily latte) add up. Limiting these unnecessary splurges frees up cash you should invest instead.
Bach recommends you revisit your budget and find those small, recurring expenses that tie up your cash. Once you free this money, he recommends splitting it between your emergency fund and your credit card bill. That way, you’ll grow your savings as you shrink your debt.
After an investment broker lost her entire investment portfolio in the early 80s, Suze Orman took her financial future into her own hands. Training as an account executive for Merrill Lynch, Orman eventually became a vice president of investments at Prudential Bache Securities. Now a 10-time consecutive New York Times bestselling author, she hosts the Suze Orman Women & Money Podcast.
Unlike Ramsey before her, Orman maintains that you should focus on paying the line of credit or loan with the highest interest rate first. This is called the avalanche method, and it will reduce how much interest you pay over the lifetime of your loans.
Any strategy will help when it comes from the experts. Whether you choose to follow Orman’s, Bach’s, or Ramsey’s advice, these tips give intention to your debt payments.