I think I did the right thing!!
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| Thu, 06-09-2005 - 1:18am |
I haven't been doing very well with debt reduction or saving money lately. I had planned on doing the Dave Ramsey plan but haven't been doing really well. I paid off one credit card and then went and racked it back up again! UUUGGG! I know that if I paid my credit cards off now I would just rack them all back up again. I NEED discipline! I need to come up with a plan to become more responsible so that I can pay off my cards and start using them responsibly, and to save money. I haven't really put anything away in a while. So today, I went to the bank and I took out most of my savings and put it in an 8 month CD earning 2.6% interest. This way I cannot touch it or blow through it and I earn some decent interest as well. I left $1000 in the account as a starter emergency fund so that I can start the Dave Ramsey plan. I had $11,000, but I put the $10,000 in the CD. Why didn't you just pay off your debt with that money, you ask??? Good question.
Here is what I was thinking. That if I took the money and put in a CD and couldn't touch it for 8 months, then I could just leave it there and forget about it. In the meantime, I can look at my savings account balance and say "OMG, I need to build that up, I hardly have anything in there!" and I can say to myself "I need to drastically cut my debt so I can reduce my monthly expenses so I can add to my savings"! This was my thinking in that I could trick myself into paying off the debt and replacing the money in my savings, and hopefully by the end of eight months I will be credit card debt free and have a nice savings built up again and then I can say "Oh yeah, that's right, I have $10,000 in a CD that I need to cash out. I'm hoping by then I will have gotten my momentum back to save money and pay off debt and be in a healthier place. And like I did with my savings and not wanting to spend it, I can look at my paid off credit cards and hopefully not want to use them because I worked so hard to pay them off.
Maybe that sounds dumb, but I worked so hard for the last two years and had so much momentum to save and then after I hit $10,000, I sort of lost the desire to save
money, and really lost the desire to pay off debt and I didn't want to dip into my savings to do it because I was proud of what I had achieved! This way, I feel like I will be motivated to do both and get that momentum back! Please tell me that I am not a "village" idiot and that I did the right thing. This way, I have a safety net, and still have the $1000 to start Dave's plan, and a good solid 8 months to really make things happen again!

I think you did absolutely the right thing. There are two basic schools of thought on debt repayment--the one that says you should repay your debt in the mathematically quickest way possible, and the other (to which I subscribe) that says effective debt repayment is part of a larger financial plan that is as much psychology as it is mathematics.
To my way of thinking, we are rational animals but we are also emotional animals, and we must be trained in good money management skills. Paying off debt suddenly in a mathematically calculated manner may get us out of the hole temporarily, but it doesn't teach us any of the skills and habits we need for greater financial success.
You may notice that many, if not most, of the major debt gurus (Mary Hunt, Dave Ramsey, etc.) say basically the same thing in different ways.
Now, when you get your savings up to $10,000, I would take a further step. I would take the money from the CD and put it in something long-term, like an IRA. Then take all but the $1,000 out of your savings and put it in a CD. Then re-build your savings again.
Keep doing that and in a few years, you'll have a hefty retirement fund built up, as well as significant cash reserves.
Good for you for finding a financial strategy that works for you.
Blessings,
Heather
I think that you did what was right for YOU, and that's what will help you. I totally agree with Heather about how quick fixes may be OK in the short term, but then when we don't fix the behavior, we most likely will find ourselves in the same spot-but this time without a way to pay it all off.
I think that's why it's called "personal finance"! Besides, now you have the $1000 in the bank-according to Dave Ramsey, you have Baby Step 1 done and are now officially on Baby Step 2, Paying Off the Snowball! YAY, you!
You're doing fine, no village (or i-village, as the case may be) idiots around here!
Lisa :)
I agree with the others!!
Becky
CL of 4th, 5th & 6th grade Scoliosis