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Dave Says - Dave Ramsey

Debt cleaners are dirty deals

Dear Dave,

I received a call the other day from a company saying it could negotiate the balance on my credit cards to a lesser amount. The caller also said they could get me a zero-percent interest rate until the debts were paid off, and then the accounts would be closed. I’m kind of starting over again financially, because I sold a company I had run for almost 15 years, then got into real estate and lost almost everything. I’m making just enough to squeeze by, and my credit card debt totals $40,000. Would this be a good idea?

– Bill

Dear Bill,

No, this is not a good idea. You’re looking at two major problems with a company such as this one. One, they will absolutely destroy whatever credit you may have. Their plan is to take your cash, and spend some time beating down the credit card companies until they agree to accept a lesser amount. Then, they use your cash to settle loans you will have – by that time – defaulted on. This will put you in a situation very similar to if you had filed Chapter 13 bankruptcy. Stay away from these people.

At this point, you have an income crisis in addition to a debt crisis. For starters, I want you to start living on a tight, written, monthly budget. I’m talking rice and beans, no vacations, and no eating out until you pay off this debt. Where your income is concerned, maybe you should consider getting back into the kind of business you ran previously for a while. Look for a managerial or supervisory position in that area, at least until you’re able to get back on your feet and save some cash.

Finally, cut up the credit cards, close the accounts, and put as much money as you can spare toward paying off that debt using the debt snowball system. Never go back into debt again!

– Dave

Pay off the house first?

Dear Dave,

My husband and I are in our 40s. We have no children, and we bring home $95,000 a year combined. We’re also debt-free except for our home. We owe just $10,000 on the house, and can take care of that in a few months. Would it be okay to rearrange the Baby Steps a bit, and pay off our home before getting serious about saving for retirement?

– Nan

Dear Nan,

I don’t usually give folks any wiggle room when it comes to sticking with the proper order of the Baby Steps. But if you’re that close to being completely debt-free, I don’t see anything wrong with paying off the house first.

Most people I talk to still have anywhere from $100,000 to $300,000 left on their mortgages. This is a little bit different story, however, and you two are obviously managing your money well.

Knock out that mortgage, and start pouring at least 15 percent of your income into retirement. You’re going to love the feeling – and the freedom – that comes with being completely debt-free.

– Dave

Follow Dave on Twitter (@DaveRamsey), or go to daveramsey.com. 

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